Hi
I understood that 10% wear and tear on profit is income less costs i.e. all costs relating to the property (Mortgage Interest, Management costs, repairs etc) is this correct or is it just Water, Rates etc. see below.
Found this on HMRC website
The wear and tear allowance is calculated by taking 10% of the net rent received for the furnished residential accommodation. To find the ‘net rent’ you deduct charges and services that would normally be borne by a tenant but are, in fact, borne by the taxpayer (for example, council tax, water and sewerage rates etc).
Thanks
Ann
Replies (23)
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cryptic
not a particularly helpful answer!
If aobrien understood what it said they wouldn't be asking for help now would they?!
I don't think Euan's answer is cryptic at all. It's as clear ...
... and as helpful as it needs to be. He pointed out that the OP was wrong in her assumption and that HMRC's guidance is correct. What else needed to be said?
Ok, how about as an illustration where I receive £5k rent and my tenant pays 1k gas and electricity, 0.5k water, 1k council tax. IS my 10% wear & tear on £5k or 2.5k?
I'd love to get some of my tenants paying the mortgage. Double bubble!
Russell - your W&T is on £5k.
The law on Wear & Tear Allowance
... is set out in ss.308A-C ITTOIA 2005. In particular, s.308C(5) says:
"(5) In subsection (4)(b) “relevant expenses” means expenses in relation to utilities, council tax or anything else the cost of which is, in the case of a furnished letting, normally borne by the lessee."
It is the "relevant expenses" which are deducted from the rental income to arrive at the figure on which the 10% allowance is calculated.
So, it means that you deduct any electricity, gas, water, sewerage or council tax which the landlord has paid.
Is that clear now?
You do know what day it is don't you?
Seriously? You are having trouble dealing with one of the simpler parts of the tax legislation. You receive a bunch of answers that are not in any way cryptic. Your response to continuing to not understand is to post a wall of text expecting everyone to read it on tax return deadline day.Well since I had such interesting, cryptic replies I have listed my figures below so who can tell me what the W & T allowance is - no prize for the correct answer but at least it will be clear! Also pasted below the full explanation from HMRC
Wall of text.
Go and see an accountant in person. Find out what you've been told here is correct. But not today.
The answer is in the question
Winkworths reletting fee 12 months 1224
Furniture wear and tear allowance 2040
Investigate defective pump (Wired and Wonderful) 72
What is cryptic about the above 2 answers?
You asked a simple question and got two straightforward answers.
It reminds me of:
And neither answer is as cryptic as "It seems if the landlord has not paid for 'services' there is no W & T"
10%
I am about to embark on letting residential property having in the past concentrated on Industrial units so am not overly sure of the facts. As I understand it you assume the tenant has paid the utility bills (for tax purposes) deduct normal expenses such as accountancy / lettings agency fees and repairs and then deduct 10% off what is left i.e 10% of the income after deductions. The 10% allowance being there for wear and tear an moveable property. I believe to qualify for the 10% allowance the property only has to be part furnished e.g. curtains, carpets not beds and bedding etc.
10%
I am about to embark on letting residential property having in the past concentrated on Industrial units so am not overly sure of the facts. As I understand it you assume the tenant has paid the utility bills (for tax purposes) deduct normal expenses such as accountancy / lettings agency fees and repairs and then deduct 10% off what is left i.e 10% of the income after deductions. The 10% allowance being there for wear and tear on moveable property. I believe to qualify for the 10% allowance the property only has to be part furnished e.g. curtains, carpets not beds and bedding etc.
Wrong, wrong, wrong, wrong, wrong
The allowance is calculated as 10% of the gross rents, less only costs that the landlord has met which would normally have been met by the tenant. The landlord will normally pay for accountancy/letting fees etc so although these are deductible in computing the taxable profit they are not deducted for the purposes of calculating the allowance. As I think has been made abundantly clear (quite why some find it so difficult to understand, I don't know) the items that are deducted in computing the allowance are few and far between - Council Tax, utility bills etc (for the avoidance of doubt, only where the landlord has paid them instead of the tenant).
As for the extent of furnishing, the rule of thumb is that the tenant should be able to live in it without providing his own furniture. So beds would normally be required (though there has been some debate on this). Certainly, provision of carpets and curtains only would not suffice.
No
aobrien pasted a huge amount of stuff but the relevant bit is:
"The wear and tear allowance is calculated by taking 10% of the net rent received for the furnished residential accommodation. To find the ‘net rent’ you deduct charges and services that would normally be borne by a tenant but are, in fact, borne by the taxpayer (for example, council tax, water and sewerage rates etc)."
What in your list of expenses would you expect the tenant to be responsible for? I would suggest nothing. They are all costs of repairs & purchase of the property. If they were responsible for them they would own it!
It is quite clear from the the section above what you have to take account of in arriving at 'net rent' for the W&T.
The legislation at ITTOIA s 308B (1)(b) requires that:
"the dwelling-house contains sufficient furniture, furnishings and equipment for normal residential use," So part furnished will not do it. HMRC guidance notes say the tenant should be able to take up residence without having to move in their own furniture
s308C goes on
"(3) The amount of the wear and tear allowance is 10% of the relevant rental amount.
(4) In subsection (3) “the relevant rental amount” means—
(a) the sum of the amounts brought into account as receipts by P in calculating the profits of the property business, so far as the receipts are within subsection (6), less
(b) the sum of any amounts brought into account as relevant expenses by P in calculating the profits of the property business, so far as the expenses are within subsection (6).
(5) In subsection (4)(b) “relevant expenses” means expenses in relation to utilities, council tax or anything else the cost of which is, in the case of a furnished letting, normally borne by the lessee."
Would you expect the tenant to be responsible for the mortgage, or the management fees, or a new boiler, or frankly anything in your list? No? Well there's your answer isn't it?