50% of UK landlords will be affected by the removal of the wear and tear allowance
Back in July, we reported on government reforms that will have serious knock-on effects for both landlords and letting agents. The biggest of these reforms is the proposed scrapping of the wear and tear allowance that landlords currently enjoy, in favour of a new tax relief scheme; and now, new findings from the National Landlords Association (NLA) have revealed that 47% of all UK landlords will be negatively affected by the removal of the allowance.
What is the wear and tear allowance and what’s changing?
The current wear and tear allowance, which is only available to landlords who fully furnish their properties, is a financial relief that pays a landlord 10% of their annual earnings from their properties to help replace or fix utilities, such as white goods, that may be near the end of their working life due to general and expected wear and tear.
Under the reformed system proposed by the government, landlords will only be able to claim tax relief for ‘movable’ furniture such as: washing machines, TVs, sofas, beds, etc. Integral items such as baths, sinks, boilers, ovens etc. aren't included. The new scheme will also include a concept of betterment plan, which will affect how much relief landlords can claim when upgrading furniture to a new model. For example, if a landlord replaces a fridge that cost £400 with a new model that costs £600, the relief will not cover the difference.
Currently, 24% of landlords let their properties fully furnished, 22% let their houses partly furnished, and 53% of landlords let out their properties unfurnished. The new tax relief system is available to all landlords regardless of how, or if, they furnish their properties, and is currently under consultation until 9 October 2015. If accepted, the new system will come into force from April 2016.
Landlords will be hurt by new tax relief system
The HMRC has said that the new system is expected to save the Exchequer around £205m in its first full year, but experts and the NLA have stressed that the changes will hurt landlords and could have a serious impact on tenants, and the private rental market as a whole.
Many experts have expressed concerns that the new scheme will deter landlords from making improvements to their utilities as it could easily leave them out of pocket. Those landlords who do make improvements may attempt to offset the tax relief drop by increasing rents. What’s more, landlords will be expected to keep a record of their actual expenditure under the new scheme, making the reform an administrative burden.
Chris Norris, Head of Policy at the NLA has said that the organisation understands that many landlords who rent out their properties fully furnished will feel frustrated by the changes and a subsequent reduction in the amount of relief they can claim. On the flip side, he also expressed joy that landlords who rent out part-furnished or unfurnished properties will be able to deduct legitimate revenue expenses because of the new system.
Are you a landlord in Cardiff looking to let out your property? If so, the team at CPS Homes can help you achieve the best possible return on your investment. Contact our team today for more information, and don’t forget, Rent Smart Wales is coming in October, so, make sure you’re prepared.
The information contained within this article was correct at the date of publishing and is not guaranteed to remain correct in the present day.
