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The main issue as I see it is the fact the initial furnishing is a "tax nothing".
When you had the choice between a furnishing claim and the 10%, it made sense to exclude on the basis that otherwise a landlord would opt for the 'arising' basis on furnishing a newly furnished property (when it might well be a lot more than 10% in year one, especially if let for only a few months in the tax year), and then 10% when in future years when there is likely to be minimal replacement for a number of years.
However, now there is no relief for initial furnishing under any heading which is odd to say the least.
It could perhaps be classed as 'plant' and subject to capital allowance regime, or simply an allowable revenue cost but being a 'tax nothing' is very odd indeed and makes no logical sense to me.
Agree last post
Personally I think that the UK tax rules on property are mostly daft beyond belief, with unnecessary complexity many other countries don't bother with.
Leaving that aside, one of the first things the owner of a new property normally does - if renting it out - is invest in furnishings. Is such investment allowable under this new proposal or not?
If the answer is no, it seems to me that this certainly will reduce the desire of many landlords to invest in decent kit for their tenants. If this were a hotel or B&B, for example, such investment would be fine.
Other than that, getting rid of the ridiculous complexity of the 10% rule is a useful step forward.
A fairer system?
Aside from the lack of relief for initial purchases, which as far as I can see has not changed and has always been somewhat unfair, I feel that the proposals will certainly help landlords of unfurnished and part-furnished properties.
As for landlords of furnished properties, what incentive did the wear and tear allowance give them before to spend money on contents? Surely the unscrupulous ones would have just wanted to benefit from the tax relief without spending anyway. The genuine landlords who want to look after their tenants will now know exactly where they stand and if, as often happens, they renew contents in a year when the property is empty for part of the year, they will not lose out by having a low wear and tear allowance due to the reduced rents received.
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Excellent article highlighting the logical absurdity that is the tax position on rental properties.
The whole aim of the new rules seem to be to punish landlords for daring to own rental properties.
The disallowance of the initial purchases is going to come as a shock to some landlords and makes no logical sense, as well as no doubt lowering the quality of furnishing bought.
Is that cost then a capital expense and added to the CGT computation if you ever sell it?
Seems like another set of rules designed in an ivory tower where they don't seem to realise that this is actual money landlords spend, and landlords can just magic up more money to pay for it. So just like mortgage interest, apparently that's not real money you pay out any more, it will be a tax credit.
Student letting
One class of landlord that will be heavily affected by the loss of the wear and tear allowance is those letting property to university students.
These landlords will inevitably be offering furnished accommodation and the wear and tear allowance has generally been helpful in this situation.
The rapid change of tax rules is difficult to absorb for owners of large portfolios of student lets.
Consideration of a phased introduction to the change for furnished lettings would be sensible, particularly as this is how the loan interest change is being implemented.
And at the same time
We also continue to explain to baffled clients why some items don't qualify as revenue deductible 'repair' and alert them to the impending gradual restriction of finance cost deduction and consideration of appropriate planning.
(shouldn't bleat - but the mention in the opening lines of 'having a difficult time' set me off)
Carpets?
I agree with previous comments:-
Some sort of tax allowance for the initial furnishing would be fairer.
Abolishing the 10% wear and tear allowance removes the temptation for the unscrupulous to claim that the property is furnished when it is not, or to claim the allowance but not spend money replacing items.
I presume the replacement of carpets is still disallowable but a major expense and I would like to see this addressed.
Carpets & Deposits
I believe the cost of carpets, either initially or replacing, to be disallowable on the basis that it isn't a repair to the fabric of the building and it's capital expenditure ?
I am currently having this argument with a client of mine, who has had to replace a carpet to the tune of £1790, and as he got about £2,400 of the deposit money back for reparations from the deposit holding company, seems to think he can offset the deposit against the cost of the carpet and not count it as income !
Such is the confusion these bizarre rules cause amongst clients and we are left with the unenviable task of trying to explain and somehow justify them !