Property Rental – asset replacements and losses
Asset replacements from 2016-17
The wear and tear allowance has been superseded by replacement of assets.
These assets are allowable when replaced.
· movable furniture including beds, free-standing wardrobes
· furnishings including curtains, linens, carpets, floor coverings
· household appliances including televisions, fridges, freezers
· kitchenware including crockery, cutlery
The original cost of purchasing any of the above is not tax allowable. Only the cost of replacing an asset is now tax allowable.
Is the new item an improvement on the old asset
Care should be exercised in replacing an asset because improvement of
an asset is not tax deductible.
The cost of the new asset may have to be restricted to what an
equivalent asset would have cost.
A better quality energy saving equipment is not considered to be an improvement.
Replacing a sofa with a sofa-bed is not replacing like with like, hence there will be a restriction of new cost.
Calculating the deduction
The incidental cost of replacing an asset is allowable , for example delivery charge but any money received for the disposal of the old asset should be deducted from the replacement cost. For example if you sell the old suite on eBay and obtain £100 , this will be used to reduce the cost of the new asset.
Restriction of the asset replacement scheme
Replacement of assets relief is not available for rent a room scheme. This is where you have a lodger.
If you have furnished holiday let , which is a VAT standard rated trade you need to claim capital allowance instead and not asset replacement.
Losses from one property can be offset against profit on another property. As you are carrying on a property rental business all UK profit and loss on residential let are pulled together. Any loss can be carried forward against profit of the same rental business.
Losses from an overseas property business is ring fenced and cannot be offset against UK property rental profit.
Furnished holiday let losses are also ring-fenced.
If a property is rented on a non-commercial basis for example to a relative. This cannot create a loss as expenses are capped to rent charged. Unrelieved expenses cannot be carried forward.
Non-UK property is entered on the tax return as foreign income. If tax has been charged in an overseas jurisdiction double tax relief may be available against UK tax but it cannot create a repayment of the tax.
Losses when property rental ceases
Any unrelieved losses on cessation is lost for good. Sideway relief is not available. If you restart a property rental business within the next three years these losses will be available for offset against the new property. These losses will be offsetable against the first available profit of the new business.
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