Capital allowances are not available for expenditure on furniture and furnishings for use in dwelling houses. However, until 5 April 2016 (1 April 2016 for corporation tax) a deduction for wear and tear may be claimed (known as a ‘wear and tear allowance election’), equal to 10% of the ‘net rents’ from furnished lettings (ie after deducting payments that would normally be borne by the tenant, such as water rates). In addition, a deduction may be claimed for replacing fixtures that are an integral part of a building (eg central heating systems), but excluding additional expenditure on ‘improved’ versions of those items. However, replacing single glazed windows with double glazed units is treated as allowable repairs and not disallowable improvements.

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Many flats are let unfurnished due to the difficulties of complying with fire safety legislation.

In relation to expenditure incurred on or after 1 April 2016 (for corporation tax) and 6 April 2016 (for income tax), the former wear and tear allowance for fully furnished properties will be replaced with a relief enabling all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.

The new relief given will be for the cost of a like-for-like, or nearest modern equivalent, replacement asset, plus any costs incurred in disposing of, or less any proceeds received for, the asset being replaced.

The amount of the deduction is:

  • the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
  • the incidental costs of disposing of the old item or acquiring the replacement; less
  • any amounts received on disposal of the old item.

This deduction will not be available for furnished holiday lettings as capital allowances continue to be available for them.

Note also that the renewals allowance for tools (under ITTOIA 2005, s 68) will no longer be available for property businesses from the same date.

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