Wear and Tear Allowance


Z

zeebop

Hi,

Here is an extract from:
Expenses and allowances on income from property
http://tinyurl.com/32ytqb

=====
For furniture and equipment provided with a furnished residential
letting (excluding UK furnished holiday lettings) you can claim a
'wear and tear' allowance. The allowance is 10 per cent of the 'net
rent' - this being the rent received less any costs you pay that a
tenant would usually pay.
=====

Could anyone offer a suggestion as to what 'costs you pay that a
tenant would usually pay' are in this context? Specifically in
relation to a live-in landlord.

For example, if I receive £8,000 a year from rental income, and the
utility bills, maintenance, mortgage interest etc.. I pay exceeds
£8,000 does this mean I would not receive any WTA allowance?

Thanks for your thoughts

zeebop
 
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T

Troy Steadman

Hi,

Here is an extract from:
Expenses and allowances on income from propertyhttp://tinyurl.com/32ytqb

=====
For furniture and equipment provided with a furnished residential
letting (excluding UK furnished holiday lettings) you can claim a
'wear and tear' allowance. The allowance is 10 per cent of the 'net
rent' - this being the rent received less any costs you pay that a
tenant would usually pay.
=====

Could anyone offer a suggestion as to what 'costs you pay that a
tenant would usually pay' are in this context? Specifically in
relation to a live-in landlord.

For example, if I receive £8,000 a year from rental income, and the
utility bills, maintenance, mortgage interest etc.. I pay exceeds
£8,000 does this mean I would not receive any WTA allowance?

Thanks for your thoughts

zeebop
You are going have to apportion the expenditure because the bit that
applies to you is not business expenditure and has no place in the
calculation.

The "allowance" is an allowance against taxable profits. Either you
claim actual "maintenance" or you claim 10% of the 'net rent' - adding
back eg. the utility bills, which are costs a tenant would usually pay.
 
R

Ronald Raygun

zeebop said:
=====
For furniture and equipment provided with a furnished residential
letting (excluding UK furnished holiday lettings) you can claim a
'wear and tear' allowance. The allowance is 10 per cent of the 'net
rent' - this being the rent received less any costs you pay that a
tenant would usually pay.
=====

Could anyone offer a suggestion as to what 'costs you pay that a
tenant would usually pay' are in this context?
A tenant would normally pay council tax and utility bills but not
buildings and contents insurance (not, that is for contents provided
by the landlord - but the tenants may wish to take out separate
insurance for their own personal belongings and supplementary contents
because these cannot usually be covered by the landlord's policy).

So when rent paid is inclsive of some or all of these bills, then
the bills must be deducted from the actual rent received to arrive
at the "net rent" for WTA purposes.
Specifically in
relation to a live-in landlord.
Hmm. Are you sure WTA is available in that situation? I assumed
(perhaps wrongly) that it is only available where a *complete*
furnished property is rented out, and not in what is really a
"lodgers" situation.
For example, if I receive £8,000 a year from rental income, and the
utility bills, maintenance, mortgage interest etc.. I pay exceeds
£8,000 does this mean I would not receive any WTA allowance?
As Troy pointed out, you would need to apportion. E.g. if you live
on the premises (alone, i.e. without family or partner etc) and have
(say) two lodgers, each of whom have private areas comparable to
your own, and also have equal shared access to common areas, then
any maintenance/replacement in a lodger's private area would count
100% as business expenditure, any in your private area would not
count, and anything in a common area would count 2/3 for business.
Typically council tax and utilities would be shared on an equal basis.

So let's say that your "expenses which exceed £8000" in fact amount
to £9000 and happen to be either all for common stuff or, where not,
are equally divided between the three private areas. This would mean
that £3000 would be your private expense and £6000 would count as
business expense, so you would have a £2000 taxable profit.

Let's say that of your £9000 expenses a lot of it is for repairs
and maintenance, insurance, etc, and that only £3000 relates to
council tax and utility bills (and of course £1000 of that is your
own and only £2000 is the lodgers'). This would mean your "net rent"
is £8000 minus £2000, so your WTA would be £600. This would reduce
your taxable profit to £1400.

But don't forget that if you opt for the WTA method, then you can
no longer count the cost of repairing or replacing *contents* as
a business expense. WTA is given *instead*, and you have to choose,
and cannot subsequently change your mind. But repairs and replacements
to fixtures/fittings, and to the fabric of the building itself, are
not affected by WTA, they can still be claimed under either method.
 
Z

zeebop


Thanks for that link, from that information:
==
To find the ‘net rent’ you deduct charges and services that would
normally be borne by a tenant but are, in fact, borne by the taxpayer
(for example, council tax, water and sewerage rates etc).
==

If I include these costs, as well as redecoration, repairs etc.. it
results in a negative figure. Therefore I presume that I am unable to
claim any WTA allowance.

I'm not sure if it complicates anything by the fact that I claim 2/3
for my expenses as I live in the 3rd bedroom.
I think I may just stick to claiming expenses as opposed to WTA or
renewals.
 
R

Ronald Raygun

zeebop said:
Thanks for that link, from that information:
==
To find the ‘net rent’ you deduct charges and services that would
normally be borne by a tenant but are, in fact, borne by the taxpayer
(for example, council tax, water and sewerage rates etc).
==

If I include these costs, as well as redecoration, repairs etc.. it
results in a negative figure. Therefore I presume that I am unable to
claim any WTA allowance.
Well, if your expenses exceed your income, then you have negative profit,
so there would be no income tax to pay in any case. Hence no need to
worry about WTA. If you've had a particularly expensive year, e.g.
major repairs you would not expect every year, you can carry your
losses forward to set against future profits.
I'm not sure if it complicates anything by the fact that I claim 2/3
for my expenses as I live in the 3rd bedroom.
I think I may just stick to claiming expenses as opposed to WTA or
renewals.
You're confused. It is *not* the case that there are three options
to choose from (expenses, renewals, WTA).

Expenses fall into various categories, of which three are directly
relevant here. One category is repairs to and renewals of parts of the
building and its fixtures and fittings (which would include redecorating),
a second is repairs to and renewals of contents (furniture etc), and the
third is everything else (which would include insurance, mortgage interest,
council tax, utility bills).

All these expenses are deductible against income, except those which are
personal to you. In some cases it's OK to use a 1/3 private, 2/3 business
split, but in other cases it's necessary to be more specific. For example
if you redecorate one of the tenant's rooms you would set the full cost
against income, not just 2/3, and if you replace a window in your room,
you cannot set 2.3 of the cost against income, but rather none of it.
If you refit the kitchen you would use 2/3 of the cost.

For items in the second category only (contents), you have the choice
between setting the *actual* cost of repairs and renewals against income,
*or* the *ficticious* cost as the WTA. If you opt for the WTA method,
you cannot then charge for actual costs *in this category* but you can
still charge for actual costs in the other two categories.
 
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J

Jane

All these expenses are deductible against income, except those which are
personal to you. In some cases it's OK to use a 1/3 private, 2/3 business
split, but in other cases it's necessary to be more specific. For example
if you redecorate one of the tenant's rooms you would set the full cost
against income, not just 2/3, and if you replace a window in your room,
you cannot set 2.3 of the cost against income, but rather none of it...
Hmmm... What if you regularly switch rooms between yourself
and the tenants, and you make sure that any redecoration / window
replacement is done when it's the tenants turn in that room? ;-)
 
Z

zeebop

Well, if your expenses exceed your income, then you have negative profit,
so there would be no income tax to pay in any case. Hence no need to
worry about WTA. If you've had a particularly expensive year, e.g.
major repairs you would not expect every year, you can carry your
losses forward to set against future profits.


You're confused. It is *not* the case that there are three options
to choose from (expenses, renewals, WTA).

Expenses fall into various categories, of which three are directly
relevant here. One category is repairs to and renewals of parts of the
building and its fixtures and fittings (which would include redecorating),
a second is repairs to and renewals of contents (furniture etc), and the
third is everything else (which would include insurance, mortgage interest,
council tax, utility bills).

All these expenses are deductible against income, except those which are
personal to you. In some cases it's OK to use a 1/3 private, 2/3 business
split, but in other cases it's necessary to be more specific. For example
if you redecorate one of the tenant's rooms you would set the full cost
against income, not just 2/3, and if you replace a window in your room,
you cannot set 2.3 of the cost against income, but rather none of it.
If you refit the kitchen you would use 2/3 of the cost.

For items in the second category only (contents), you have the choice
between setting the *actual* cost of repairs and renewals against income,
*or* the *ficticious* cost as the WTA. If you opt for the WTA method,
you cannot then charge for actual costs *in this category* but you can
still charge for actual costs in the other two categories.
Thank-you for your comprehensive reply. I do appreciate your (and
others) time.

I think I was unclear in my previous post; my understanding of what is
allowable falls into the three general categories
- Expenses
- WTA *or* Renewals

I am basing that on the information from:
http://tinyurl.com/32ytqb
http://www.hmrc.gov.uk/manuals/PIMMANUAL/PIM3200.htm

The key element in your response for me was the fact that WTA is
irrelevant if my overall expenses exceed the income, which I believe
(even at 2/3) will be the case.
However, I will make sure that in the appropriate areas I claim 100%
for improvements that were wholly for tenants - I didnt realise this
previously.

My focus at the moment is making sure I am allowed to claim for the
costs that I want to. For example under expenses:
===
- maintenance and repairs to the property (but not improvements)
===

Hopefully this encompases redecoration (painting), however I'm not
sure if it will cover costs of reflooring an old (15-20 year) carpet
and replacing it with a hard wearing surface.
Although I'm sure my accountant will point out any erroneous claims.

Thanks again.
 
R

Ronald Raygun

zeebop said:
The key element in your response for me was the fact that WTA is
irrelevant if my overall expenses exceed the income, which I believe
(even at 2/3) will be the case.
I think I was unclear. I meant that in circumstances when expenses
will regularly exceed income, i.e. if you're usually going to be
making a loss, then there will never be any tax to pay, and therefore
it may well not matter whether you account for furniture renewals on
an actual costs basis or by means of the WTA. If your *non-contents*
expenses are already sufficient to create a loss, then there is no
need to worry about whether WTA or renewals basis is the better method
for accounting for contents replacements, but if not, then (assuming
money is more important than convenience) you will still need to make
a judgement whether or not to opt for WTA.

You should go for whichever will *in the average year* be bigger.
Unless you renew often and to high spec, I reckon you're usually better
off with WTA. But you do need to think long-term because if you opt
into WTA, you won't be able to opt out again until the property in
question ceases to be part of your rental business, or possibly if it
changes status to unfurnished and then back to furnished again.

I expect you can use WTA to create or increase a loss capable of being
carried forward to set against future profits in the same way that
you would otherwise use actual renewal costs.

The main thing to remember, though, is that all this applies only to
contents and not to the property itself or to anything affixed to it.
So the cost of replacing a kitchen sink would be allowable even if
you had opted for WTA, but the cost of replacing a kitchen table
would not.

Take the case of a washing machine. It's broken beyond repair and
you replace it with something equivalent. If you did not opt for
WTA then the entire replacement cost becomes an expense. If you did,
then you're expected to pay for it out of your own pocket. There is
a grey area here: I thought that WTA covered not just renewals but
repairs as well, so that if the machine breaks but can be (and is in
fact) repaired, then under WTA the repair costs would also come out
of your own pocket, but now I think I was mistaken, and that you can
actually expense the repairs even if you're under the WTA regime,
only the renewal costs would be disallowed.
However, I will make sure that in the appropriate areas I claim 100%
for improvements that were wholly for tenants - I didnt realise this
previously.

My focus at the moment is making sure I am allowed to claim for the
costs that I want to. For example under expenses:
===
- maintenance and repairs to the property (but not improvements)
===

Hopefully this encompases redecoration (painting),
It does.
however I'm not
sure if it will cover costs of reflooring an old (15-20 year) carpet
and replacing it with a hard wearing surface.
It should do, provided it was fitted carpet, which would make it count
as a fixture, part of the property. A loose carpet would be contents.

A hard wearing surface? I take it you mean something like lino or
perhaps laminated flooring. You'd need to consider what it would
have cost to replace the fitted carpet with another similar fitted
carpet. If the alternative costs more, the excess would be an
"improvement" (the cost of an improvement would be allowable against
your CGT account but not against your income), but you could still
expense what the carpet would have cost. Alas, if the alternative
costs less than the carpet, this would be an "un-improvement" and
you could only expense its actual cost instead of what the carpet
would have cost, even if you wanted to charge the difference as an
item of capital un-expenditure.
 
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P

PeterSaxton

The key element in your response for me was the fact that WTA is
irrelevant if my overall expenses exceed the income, which I believe
(even at 2/3) will be the case.
Nothing is irrelevant. Even if you make a loss declare it because you
may make profits eventually - eg. if mortgage interest reduces - and
then you can reduce any profits by the accumulated losses.
 

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