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HMRC internal manual

Property Income Manual

Furnished lettings: wear & tear allowance: 2011-12 to 2015-16

ITTOIA/S308A, CTA09/S248A

This legislation applies to tax years 2011-12 to 2015-16 (inclusive) for income tax payers and for accounting periods commencing on or after 1 April 2011 to 31 March 2016 for corporation tax payers. For corporation tax payers there are transitional arrangements for accounting periods which began before 1 April 2016 and end on or after that date (a straddling period).

Landlords could elect to deduct a wear and tear allowance as an expense of their property business.

This election meant that instead of claiming relief for replacing utensils, or repairing furniture, the landlord deducted an allowance calculated as a percentage of rents received.

The option to elect for a wear and tear allowance was only available for lettings of furnished dwelling houses.

The term “dwelling-house” takes its everyday meaning which is set out in the Capital allowances manual at CA11520.

To qualify as a furnished residential letting the property had to be a dwelling house that was let with sufficient furniture, furnishings and equipment for normal residential use.

Sub-let

Where a furnished dwelling house was sublet, only one landlord in the chain could claim the wear and tear allowance. This was the first landlord in the chain who was eligible to claim the relief.

Example 1:

A lets a property to B, complete with fully fitted kitchen, carpets and curtains. In turn B installs sufficient beds, chairs, tables and other equipment to allow normal residential use and lets the property as student accommodation.

B could make a wear and tear allowance election as A did not let the property with sufficient furnishings so as to allow “normal residential use”.

Example 2:

C lets a property to D. The property is let complete with furniture and equipment. In turn D sublets the property to an employee who can simply move in as there are sufficient beds, chairs, tables and other equipment to allow normal residential use.

D could not make a wear and tear allowance election as C let the property to D complete with sufficient furnishings so as to allow “normal residential use”.

Calculation of wear and tear allowance

ITTOIA/S308C, CTA09/248C

The wear and tear allowance is 10% of the “relevant rental amount”.

The “relevant rental amount” is:

  • the receipts from furnished residential lettings recognised in arriving at the profits for the period; less

  • any expenses that would normally be borne by the tenant

The receipts include the taxable element of any lease premium or reverse premium received (see PIM1200 onwards).

If the landlord pays any expenses that would normally be borne by the tenant, then these are deducted from the receipts to arrive at the relevant rental amount. The type of expense that would fall to be deducted include the utilities bills (gas, water, electricity), council tax or, in Northern Ireland, domestic rates.

The 10% is calculated only on the net rent from furnished lettings. Any rent from unfurnished lettings is excluded from the calculation as are any expenses from these lettings that would normally be borne by the tenant.

What the 10% wear and tear allowance covers

The 10% wear and tear allowance covers things like:

  • movable furniture or furnishings, such as beds or sofas,

  • televisions,

  • fridges and freezers,

  • carpets and floor-coverings,

  • curtains,

  • linen,

  • crockery or cutlery,

  • beds and other furniture.

This list is not intended to be complete but gives an idea of the assets the wear and tear allowance covers.

What the 10% wear and tear allowance does not cover

The wear and tear allowance relates to the additional furniture and fittings that make it a furnished letting. It does not apply to the fixtures that are an integral part of the buildings.

Fixtures integral to the building are those that are not normally removed by either tenant or owner if the property is vacated or sold. Examples include:

  • baths

  • washbasins

  • toilets

  • immersion heaters.

This list is not intended to be complete but gives an idea of the assets that are integral to the building and fall outside the wear and tear allowance.

As these items are integral to the building, the cost of replacing these items is normally an allowable expense as a repair to the building.

Guidance on when replacing an item is a repair to a larger entirety can be found in the Business Income Manual at BIM46900 onwards

Claiming wear and tear allowance

ITTOIA/S308A, CTA09/248A

Wear and tear allowances was claimed by an election. An election had to be made for each tax year or accounting period.

The legislation does not specify any particular form for the election. HMRC accept the entry of a sum including the wear and tear allowance in the appropriate box on the SA/CTSA return as sufficient notice of election.

Income Tax payers

An election for wear and tear allowance has to be made on or before the first anniversary of the normal self-assessment filing date for that year.

Corporation Tax payers

An election for wear and tear allowance has to be made within two years from the end of the accounting period.