PIM3230 - Furnished lettings: Renewals basis: 2012-13 and earlier

{#IDACL05H}ESC B47

This guidance does not apply in relation to expenditure on replacing plant and machinery which is incurred:

  • on or after 6 April 2013, for the purposes of income tax; and
  • on or after 1 April 2013, for the purposes of corporation tax.

The guidance on the relief available for later periods see the Business Income Manual.

Background

Before the introduction of plant and machinery capital allowances, the renewals allowance was extended to machinery and plant assets outside the narrow range to which the legislation on renewals applies. This was sometimes termed the non-statutory renewals basis and was an extra statutory concession.

Under the then legislation, the cost of such assets was capital expenditure and any relief was only due under the capital allowances plant and machinery code.

A claim to use the non-statutory renewals basis could be admitted provided that the taxpayer was aware of and accepted the restrictions on relief.

This practice was withdrawn following a period of consultation as part of the review of extra statutory concessions following the House of Lords decision in CIR v Wilkinson.

Non statutory renewals basis

Under Extra Statutory Concession B47, the cost of replacing plant and machinery supplied with the property could be claimed as an expense where neither the 10% wear and tear allowance nor plant and machinery capital allowances are claimed. The renewals allowance was also available for unfurnished property.

Under the terms of the concession, whatever basis is chosen had to be followed consistently. It was not possible to chop and change between the wear and tear allowance and the renewals allowance from year to year.

The amount to be allowed was the actual cost of the replacements excluding any additions or improvements, and after deducting the scrap value or sale price of the items replaced. The cost of the original items was not expenditure on renewals and was not allowable.

Example

Malcolm replaced a washing machine in a flat he let. He sold the old washing machine for £20 and bought a washer dryer costing £559 to replace it. The cost of buying a new washing machine like the old one would have been £399.

Malcolm deducted from the £559 both the £20 received for the old machine and the £160 that represented the difference in cost between a washing machine and a washer dryer. His renewals deduction was therefore £379.

Sometimes it was impossible to find the current cost of replacing an old asset with something identical. In the previous example, the old washing machine may have been of a kind which was no longer available. Common sense had to be used to find the cost of a reasonable equivalent modern replacement.