Let Property - renewals basis

Let Property - renewals basis

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Let Property – renewals basis

Everybody is telling us that the old non-statutory renewals basis is dead.  This is generally in relation to furnished lettings, but presumably it applies to all lettings.

There was an AccountingWeb thread on this some little while ago, but it got bogged down, as these threads sometimes do, in personal vituperation which obscured the quest for truth.  I hope Nicola Ross Martin will feel able to contribute to this one as an expert, and that we can all make sense of it together.

My problems with the death of the renewals basis are as follows:

1                     HMRC’s summary of responses to draft legislation enacting ESC B47, published on 8 March 2011, indicated (at 3.39) that the non-statutory renewals basis would continue as an unnumbered ESC until further notice.

2                     The 10% wear and tear allowance (which seems to be all that is left for furnished property) has to be elected for (ITTOI 2005, s. 308A).

3                     S. 308C says you cannot have any other form of relief if you make the election.  Why bother if there is to be no other form of relief?

4                     HMRC have published BIM46900 on repairs and renewals as “draft guidance”.  I wonder, does this mean that it is incomplete, or intended to accompany guidance on related matters?  This addresses the non-statutory renewals basis, The final part of this document (46990) deals with the non-statutory renewals basis, which is consigned to the period before April 2013.  So I think we can take it that renewals is dead for plant and machinery, which is what that guidance is about.  Let property is not explicitly dealt with.

5                     Apart from that draft guidance at BIM 46990, dealing with plant and machinery, I have not yet been able to trace any clear announcement from HMRC relating specifically to let property, that renewals is dead and that 10% wear and tear, with or without an election, is all that remains.

6                     All the focus is on furnished lettings, but unfurnished let property typically includes “white goods” in the kitchen – cooker, fridge/freezer, dishwasher, washing machine, perhaps a microwave.  If built in, these qualify for relief on replacement as integral features.  But many of them are not built in, and I think the renewals basis is the only way to claim for the expense of replacement when required.  It’s going to be a bit sad if you cannot claim at all, since these goods do not qualify for capital allowances.

Accordingly, I’m not convinced that I have got to the bottom of what the law and HMRC think about this, and I am reluctant to issue guidance to clients on this matter at this stage.  I’d like a lot more clarity. 

This confusion underlines the unsatisfactory nature of ESCs; in the long term it’s probably a good thing that we are moving away from them.

If I’ve missed something rather obvious, please point me to it gently.

Replies (10)

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By King_Maker
11th Jul 2013 10:58

From my brief research :

1. HMRC's Technical Note of 6 December 2011 states ESC B47 is to be withdrawn from 6 April 2013 for Income Tax and 1 April 2013 for Corporation Tax.

2. If one charges separately for furniture, this is to be treated as a rental receipt (section 308(1)(a) ITTOIA 2005. However, section 308(1)(b) allows a deduction for the provision of furniture. This seems better than renewals basis. No doubt I have overlooked a restriction(s)?

3. Section 308(1)(b) ITTOIA 2005 (above) might be another option?

4. Renewals basis remains for "trade tools" (section 68 ITTOIA 2005). What qualifies? Hyman v. CIR is mentioned in relation to small tools, but I not covered its transcript. BIM46935.

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By nogammonsinanundoubledgame
11th Jul 2013 11:17

Re point 6 of OP

I may have missed something, but I don't see how it would help to have certain goods categorised as "integral features", as Capital Allowances would presumably be barred by s.35 CAA 2001.  Or perhaps you are also considering commercial lettings?  Which goes back to your opening sentence "presumably it applies to all lettings".  It would probably be a good idea to consider commercial lettings and residential lettings separately, if only because of the Capital Allowances angle.

With kind regards

Clint Westwood

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By David_Lewis
12th Jul 2013 18:50

Bizarre impact

I've been looking at the draft guidance in the context of a (very) recent refurbishment of an unfurnished letting.   While the draft guidance gives an example of a like for like (or similar) kitchen replacement being a repair (as the building is the asset and kitchen is part of the building), it seems bizarre that rewiring a property is not allowable because it treated as an "asset on which capital allowances are given"- even though capital allowances can't be claimed for a dwelling house.

I realise that tax isn't always logical, but to me the inconsistency seems completely bizarre - am I missing something?   Does  anyone have any thoughts on this?



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By David_Lewis
20th Jul 2013 12:57

Integral features

I've had a further look at the draft guidance  BIM 46495 refers to integral features and when I read it in isolation I took it to mean that replacement of integral features in a dwelling house would be disallowed.  


However, looking at the example in B46950   it says "As the property is a dwelling house, it does not qualify for capital allowances and so the integral features rules do not need to be considered".   While this appears to confirm that allowances for white goods etc are no more, it also suggests that I was missing something in my previous post and the rewiring would be allowable.

It would be helpful if separate guidance was written specifically for residential lettings businesses!! 

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By Ned Ludd
21st Jul 2013 01:38

Link please anyone...
Everyone is talking about draft guidance. Any chance of a link please?

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By Steve Kesby
21st Jul 2013 13:44

Draft guidance

The draft guidance can be found HERE.

Eddybee and the OP might also find this recent thread useful.

White goods integrated into a fitted kitchen aren't integral features but might fall within the definition of fixtures (and thus a repair to the entirety) as discussed within the draft guidance. HMRC might well resist the point though.

Rewiring would fall within the definition of integral features for a business that can claim capital allowances, which might well deny revenue relief.

For a business that can't claim capital allowances it OUGHT to be classed as a repair under the draft guidance. There is case law somewhere though where a hotel was completely rewired and it was held to be capital. I'm not sure if there was a predilapidation aspect though. See also the Amy example at BIM46950 of the draft guidance, which suggests that HMRC will accept rewiring as revenue where (taken as a whole) the character of the building is unchanged.

The point being argued in the vituperative (nice word!) thread that the OP refers to was the interaction between the wear and tear allowances and the provisions that give (or potentially give) relief for renewals.

Everything does seem to me to point towards the wear and tear election being made (or not made) on an annual basis, allowing switching, and will only preclude revenue relief for renewals in any year that it is made.

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By Ned Ludd
21st Jul 2013 12:38

Thanks Steve

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By johnfrancis
23rd Jul 2013 10:08

Thanks to everybody

As initiator of the OP, I'd like to thank everybody for their contributions thus far.  I'm left with the feeling that HMRC has created a complete muddle, and that we are all struggling.

A highly respectable firm of Chartered Accountants has published something that includes the following example:

"Mr Bloggs owns a property and provides carpets, white goods and curtains. He has let the property for a number of years and claimed the renewals cost of items as deductible as each needed replacement. ... From 6 April 2013 none of these costs are deductible. After seeking advice, Mr Bloggs has acquired a Sofa and a Bed for the property. Together with the items he had previously offered, the property can now be considered ‘fully furnished’ with wear and tear allowance available." Instinctively, I find this advice is alarming.  What do others think?                                           No-one has been able to point me to anything very definitive from HMRC, beyond the draft guidance which is primarily (and possibly even exclusively) about plant and machinery.  For now, I think some of the very clear statements about the abolition of renewals for let property currently to be found on the websites of many firms are open to at least an element of doubt, and I think the muddle will go on for some little while.

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By Steve Kesby
24th Jul 2013 10:46

For what it's worth

I disagree with the highly respectable firm of accountants at a technical level. Replacement carpets and curtains ought to qualify for relief under S.68 ITTOIA 2005, if indeed they don't qualify for revenue relief on general.

I think that that ought to extend to the white goods too, but I accept that the boundaries are then being pushed further into the mirky grey area.

I do agree that it's been a successful exercise in obfuscation by HMRC, and it could be that the approach suggested by this firm is the most practical on,e unless sufficient sums are being spent on replacements to warrant taking a more aggressive stance with a view to having the matter determined by a tribunal.

If the aggressive stance is taken and the tribunal finds against the taxpayer, the opportunity to claim wear and tear allowance might then be lost.

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Nichola Ross Martin
By Nichola Ross Martin
06th Aug 2013 16:44

Lack of time

sorry I have a lot on - the last Finance Act was a bit of a killer for writers! However I have already created pretty comprehensive guidance on this on my site - www.rossmartin.co.uk see the links in the Land and Property section.

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