Replacement of Domestic Items relief is introduced in residential property business to replace the 10% wear and tear allowance that has been abolished. The relief is available for the tax year from 6 April 2016 onward.
If you are calculating your income tax for rental income falls in period prior to 6 April 2016, you may claim the 10% wear and tear allowance.
From 6 April 2016, you may be able to claim a relief for the cost of replacing furniture and fittings, also called the domestic items, in your buy to let properties. The relief covers the following domestic items.
- Movable furniture for example beds, free-standing wardrobes
- Furnishings for example curtains, linens, carpets, floor coverings
- Household appliances for example televisions, fridges, freezers
- Kitchenware for example crockery, cutlery
The Replacement of Domestic Items relief is available and apply to unfurnished, part furnished or fully furnished residential property.
Replacing old furniture – beyond repair
You may claim the replacement of domestic items relief when you replace, say, a piece of broken and beyond repair furniture in your buy to let property. You buy a new furniture for your property for use by your tenants in that property.
This relief only available for replacement of domestic items not the initial cost of getting the items for your property.
Upgrade of old furniture – modern furnishing
If you are replacing your broken furniture in your buy to let, an upgrade version, say, a sofa with a sofa bed, the allowable deduction is limited to the cost of purchasing an equivalent of the original item. So if a new sofa would have cost you £400 but a sofa bed cost you £550, you could only claim the £400 as a deduction and no relief is available for the £150 difference.
When considering if the new item is an improvement on the old asset, the test is whether the replacement item is or is not, the same or substantially the same as the old item.
Changing the functionally, say from a sofa to a sofa bed, means the replacement is not substantially the same as the old item.
Changing the material or quality of the item also means the replacement is not substantially the same as the old item. Say you upgrade from synthetic fabric carpets to woolen carpets, the replacement is not substantially the same as the old item so there has been an improvement.
If the replacement item is a reasonable modern equivalent, say a fridge with improved energy efficient rating compared to the old fridge, this is not considered to be an improvement and the full cost of the new item is eligible for relief.
In the example above, if you later purchase a replacement sofa bed for use in that buy to let property, you would be able to claim the full cost of this new sofa bed. This is provided there was no improvement on the old sofa bed and the old sofa bed is no longer available for use in that property.
Calculate the replacement of domestic items relief
When calculate the relief, you must take into account if your old domestic item is sold or part exchanged for the new item, and also the incidental costs of disposing of the old item or acquiring the replacement item.
The formula to work out the relief for the new item is as follows:
- The cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent) plus
- The incidental costs of disposing of the old item or acquiring the replacement less
- Any amounts received on disposal of the old item
Sheila has replaced a single, wooden framed bed in her rental property with a new double divan bed. The new double bed is an improvement on the old bed and Sheila paid £400 for it which is significantly more than the £150 it would have cost if she had replaced the old bed with a new equivalent wooden framed bed. Therefore Sheila cannot claim more than £150 of the purchase cost as a deduction. Sheila also paid an additional £20 to have the new bed delivered but managed to sell the old bed online for £30.
Sheila needs to work out how much he can claim as a deduction:
- Cost of new replacement item limited to the cost of an equivalent new item £150
- Add the delivery charges £20
- Less proceed from selling the old bed £30
- Amount deductible under Replacement of Domestic Items Relief is £140.
Furnished holiday Let
If you replace a domestic item in a property which qualifies as a Furnished Holiday Let, Replacement of Domestic Items relief is not available. You will continue to be able to claim capital allowances on these items.
Rent A room
If you use the Rent a Room Scheme, Replacement of Domestic Items relief is not available.
10% Wear and Tear allowance
You cannot claim the 10% Wear and Tear allowance while also utilizing the Replacement of Domestic Items relief.