White Goods in rental property

White Goods in rental property

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Since HMRC have removed the option of claiming for the costs of White Goods in a rental property even as a replacement item is this an alternative way of recovering their costs? For example, previously rental flat with monthly rent of £500. New tenancy created with monthly rent £450 and in addition rental contract signed for white goods at £50 per month. Depending on size of portfolio vat may be another consideration but any thoughts on the general approach?

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By Paul Hawes
13th Nov 2014 13:29

Interesting idea
Pretty sure HMRC would argue that the rental of the white goods is still part of your rental income though as you would not be receiving it if you weren't renting out the property in the first place.

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Portia profile image
By Portia Nina Levin
13th Nov 2014 13:31

What has changed?

Your income is £500 per month both before and after, and HMRC will not give you any relief for your white goods, unless the white good leasing is sufficient an undertaking to constitute a trade.

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By awoodj
13th Nov 2014 14:54

That's where I was going in terms of a trade

If a landlord has 10-20 properties or more then I would say the leasing of white goods as a separate option along with a rental property is a separate trade. Especially if the tenant can take the property at £450 either way, but has the option of leasing a washing for an additional £50 as a separate item if they wish.

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Portia profile image
By Portia Nina Levin
13th Nov 2014 14:57

But then

Why not just charge less rent and not provide the white goods. Or, even better, charge the same rent and do not provide the white goods.

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By awoodj
13th Nov 2014 15:10

If only tenents were that accomodating

For whatever reasons various tenants will have different views on what they do and don't want so it's not always that simple, hence trying to get the most efficient way to deal with the tax aspects of those choices.

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By norstar
13th Nov 2014 15:15

Integrate, or furnish

Either get the white goods integrated then claim replacement cost as a repair:

"The response from HMRC is that in its view no claim can be made for stand-alone white goods, as they do not qualify for relief under s68, Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) which applies to capital items of a relatively low value and not, for example, a fridge. If the white goods are integral in a fitted kitchen then replacement could be claimed as a repair but there is no tax relief for replacing them on a stand-alone basis"

or get the client to put a table and chair, single bed and white goods in then claim wear and tear allowance.

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Replying to Alex70:
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By awoodj
14th Nov 2014 15:10

Fully furnished takes a bit more than that

Fully furnished means someone can move in with their clothes pretty much and everything is there, cutlery, kettle etc etc. Other consideration is that in between tenancies many councils don't give any period of exemption from council tax if furnished but do so for unfurnished properties.

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Jennifer Adams
By Jennifer Adams
13th Nov 2014 18:40

s 68 ITTOIA 2005 is the section...

Post-April 2013, the non-statutory ESC B47 ‘renewals’ basis is no more as, in their view, HMRC deem it to be unnecessary.  Their contention is that any claim that would previously have been covered by the concession is still be possible but under other sections of the law.

Replacement of such Items as sinks, baths, radiators should be allowed as ‘repairs’ as they are attached to the fabric of the building (integral) but only providing that the item is ‘like for like’.

As norstar says, look at s68 ITTOIA 2005 - ‘Replacement and alteration of trade tools’. This section applies to expenditure ‘incurred on replacing or altering any tool used for the purposes of a trade’. The legislation is normally considered to refer only to small items such as hammers and chisels etc but tax cases have extended the relief to include other items of plant and machinery. but as letting is not a manufacturing business trying to persuade HMRC to allow a claim for the cost of an item replaced under this section will not necessarily be straightforward but possible.

To get a claim under furnished lettings you have to furnish to such an extent (again as norstar says) so that someone can walk straight in and live there.

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By norstar
17th Nov 2014 12:38

Subjective definition of "furnished"?

From HMRC: "To qualify as a furnished residential letting the property has to be a dwelling house that is let with sufficient furniture, furnishings and equipment for normal residential use".

I have a friend who lives in a house with one bed, one chair and one Victorian trunk for his clothes. He has very little in the kitchen for utensils as he tends to eat at work. He's very happy.

If I was to let to him, the definition of furnished would be that - just a chair, a bed, white goods, knives and forks and a trunk for his clothes because he can quite happily live there with normal residential use.

I could also put in a dining table, more chairs, a wardrobe and a TV, but he'd feel stifled.

Point is, there's a minimum level at which you can say it can be used normally - but what is that? Can you sit down somewhere? Yes. Can you sleep in a bed? Yes. Can you cook and eat - no matter how basic? Yes. Seems that you can quite happily tick the boxes with minimal furnishing but to be sure of avoiding an argument with HMRC, you might well advise that they put more in...

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Portia profile image
By Portia Nina Levin
17th Nov 2014 12:54

Convenient definition of "normal"

With the greatest respect to your friend's rudimentary lifestyle, I would say that he is not "normal" (in the being atypical sense).

We need to focus on two other words (from the legislation, they are not HMRC's), sufficient and use.

What is sufficient for normal residential use will vary between, say, a studio flat and a five bedroom house.

We need to look at the way that the normal (read typical) tenant would use the property, and provide them with sufficient furniture, furnishings and equipment for that use in order to satisfy the definition.

That being said, this is a topic has been done to death before.

 

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By michaelblake
17th Nov 2014 14:10

No longer possible to charge for furniture seperately

I think the difficulty with a separate charge for furniture  is as explained in the HMRC guidance at PIM3200

 

Historically the income from providing furniture was not treated for tax purposes as income from exploiting an interest in land. The legislation now includes as part of a property business the income and expenditure from furniture included in a lease of a building (both residential and commercial). It also applies to the provision of furniture as part of a lease of a caravan or the lease of a houseboat, where these form part of a property business.

 

i.e. it used to be possible but is no longer following a change in the law. I cannot recall,and have not bothered to look to find out, when the change occurred. 

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Portia profile image
By Portia Nina Levin
17th Nov 2014 14:22

That does not explain anything

It says that if the property and the furniture are provided under the same lease, then:

historically the income in relation to the furniture was not treated as a property source,but now it is included as property income.

That being said, you cannot trust anything the HMRC say anymore; in its manuals or otherwise.

PIM3200 does not cover the situation where the two things are provided under separate leasing arrangements.

However, unless your furniture leasing is a trade, it would be regarded as special leasing, which also precludes capital allowances for plant and machinery used in a dwelling house.

The renewals basis could always be applied, except that HMRC think it cannot.

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