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How to save tax with the new Replacement Relief

3 February 2016

The way landlords claim Wear and Tear Allowances is changing – and an opportunity to save tax comes with the changes.

Current rules that let buy to let landlords who rent out furnished homes claim a 10% Wear and Tear Allowance each year even if they do not spend any money on upgrading their properties will be scrapped.

Instead, from April 6, 2016, all landlords renting out buy to let homes can claim Replacement Relief.

Replacement Relief is only allowed when a landlord spends cash to buy new furniture, appliances, soft furnishings or other items for the use of a tenant in a property.

Some other restrictions also apply –

• The property related to the spending must be let to private tenants

• The item purchased must be solely for the tenants

• No claims for replacement tools in a property business are allowed

• Claims for homes that are uncommercial lets or attracting Rent-A-Room Relief are disallowed
Replacement Relief is worked out differently for the 10% Wear and Tear Allowance.

Landlords can claim the replacement cost of an item plus the cost of disposing of the old item less any payment received against the disposal.

As 2016 is a transitional year for 10% Wear and Tear Allowance and Replacement Relief, put off any spending on replacing furniture, white goods and other items for tenants until April 6, 2016 unless you really have to make the spending now.

Furnished buy to let landlords will receive the full Wear and Tear Allowance cutting their tax bills by 10% of net rents, while unfurnished buy to let landlords can make no claim anyway.

However, from April 6, both types of landlords can claim back their spending under Replacement Relief.

“The new relief is fairer because the amount landlords receive is not affected by the rents they charge, which can vary across the country,” said a HM Revenue & Customs (HMRC) spokesman.

Replacement Relief claims can be made for items such as:

• Movable furniture or furnishings, such as beds or suites,

• Televisions,

• Fridges and freezers,

• Carpets and floor-coverings,

• Curtains,

• Linen,

• Crockery or cutlery,

• Beds and other furniture

Replacement of integrated appliances, such as ovens or freezers should be claimed as repairs.