What is wear and tear allowance?
Wear and tear allowance allows landlords to offset 10% of their annual rental income against their property income tax bill. While this may seem simple, there are several conditions. For example, wear and tear can only be claimed on fully furnished properties. This means that the property is completely ready to be moved into, with the tenants not needing to buy anything, including bedding and crockery. It is also important to note that wear and tear does not take into account the amount of money the landlord has spent on furniture, and is based on income and income alone. If your annual income includes costs usually paid by the tenant such as utilities or council tax, these must be deducted before working out the 10%.
What is the renewals method?
The renewals method allows landlords to offset the costs of renewing or replacing an item. The property does not need to be fully furnished to do so. This method also has certain things to consider before claiming. Renewals do not apply to initial costs of items. For example, a landlord cannot offset the cost of new furniture for a property against their annual property income tax bill. However, should they buy a fully furnished property and choose to replace the items because they are old or worn-down, they could offset this cost against their annual property income tax bill.
But which method should you choose?
It’s important to make the right decision, as the method chosen must be carried on for the duration of the property ownership. In other words, a landlord couldn’t choose wear and tear whilst it works in their favour, and then switch to the renewals method when things change. So, here are some things you should bear in mind…
Is the property furnished? Unless it is fully furnished, you cannot claim wear and tear allowance.
Are you going to be fully furnishing the property to a high standard? If so, we suggest wear and tear allowance. A high standard of furniture will most likely not need replacing for many years, and so the renewals method would be pointless. This logic also applies to landlords that plan to sell their property quickly, as the furniture will most likely not need replacing before the sale.
Who are you renting to? It is recommended that student landlords choose the renewals method, as with an annual turnover of new tenants, the furniture will need to be replaced more regularly.
If you are a landlord and would like to know more about our property management services, please visit mistoriaestateagents.co.uk/landlords/ or to find out more, contact us on 0800 500 3015.