Another attack on Buy to Let returns - the abolition of wear and tear allowance

Published: 25/05/2018 By Robert Coyle

What has happened?  
For a variety of reasons the government has decided to make buy to let investing much less attractive to individual investors. For instance the ability to get tax relief on interest payments is being withdrawn in stages.

Wear & tear allowance  
For furnished lets a landlord USED to be able to deduct 10% of rents received as an allowance against the cost of wear & tear on fixtures & fittings – items like furniture, kitchen appliances & goods. This allowance has now been abolished.

Replacement allowance  
Instead, now if you replace an item you can deduct the cost of the replacement in that year’s tax return, but note:
· It is only the cost of replacing – so if you are spending for the first time – say to furnish a new buy to let, the costs are NOT deductible,
· Only replacement costs are allowed – if you are improving (so not replacing on a like for like basis) – then the element of costs that relates to improvement as opposed to replacement is not allowed

Are there any upsides to this?    Hmmm – well:
· Replacement costs do apply to unfurnished or partially furnished rents (so say you provide just a fridge & a cooker but not other items)
· You can plan replacements to occur in a year of likely maximum tax on other items – say you know you will get a big bonus one year but not another, but
· Effectively this is designed to reduce the tax allowances on letting

So what can you do?   Well once again with property it isn’t straight forward:
· The basic angle is that the government is trying to reduce the attractiveness of buy to let as an investment
· If you have only a couple of properties it probably isn’t worth looking at mitigation strategies – so should you review whether you stay in buy to let at all (but this can be a complex decision)
· If you do want to stay as an investor really pay attention to your record keeping – there remain lots of allowable expenses – but we often see clients fail to keep enough records to enable them to claim what they remain entitled to
· If you are a serial buy to let investor a corporate structure may be a better way to hold your properties – but that needs careful consideration & planning

So the advice remains – now is a good time to review your buy to let investments – but it can be a complex decision – talk to our experts to explore your options.