Rent - replacement of assets and losses

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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The wear  and tear  allowance has been superseded by  replacement of assets.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  

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.