Renewals method claiming tax relief

[TonyW]

Having discussions with an acquaintance over offseting the cost of renewing or replacing an item in a property we seem to have different (and possibly both wrong) views. So I was hoping that someone could shed some light on the situation.

My property was inherited and in very poor condition which required a good deal of expenditure prior to letting and is let partly furnished. This included:

Replacing Bathroom, Kitchen (including all white goods) floor coverings etc etc. This all done on a low budget and basically on a like for like basis. Other work included damp proofing, complete rewire, complete plastering and painting.

My friend quite insistant that these costs could be offset against tax using the Renewals Basis. I did not think this was the case as these things were done prior to the start of letting and my understanding was that you could only use this method when replacement /repairs needed during the course of a tenancy. I also thought that these initial costs could be used only against any future CGT liability.

I would be really pleased to hear if my understanding is incorrect

[Richlist]

My property was inherited and in very poor condition which required a good deal of expenditure prior to letting and is let partly furnished.

The fact that it was inherited, in itself makes no difference to the situation. You will probably need the valuation of the property at the point of inheritance in order to calculate any future CGT liability.

This included:

Replacing Bathroom, Kitchen (including all white goods) floor coverings etc etc. This all done on a low budget and basically on a like for like basis. Other work included damp proofing, complete rewire, complete plastering and painting.

Its all capital expenditure.

My friend quite insistant that these costs could be offset against tax using the Renewals Basis.

Your friend is wrong.

I did not think this was the case as these things were done prior to the start of letting and my understanding was that you could only use this method when replacement /repairs needed during the course of a tenancy.

The renewals basis will not be allowed from April 2013.Therefore only the 10% wear & tear allowance will be available and ONLY for fully furnished property.

[TonyW]

Thanks for the quick reply Richlist, although I was kind of hoping that he could be correct.

The part about renewals basis being a bit of a blow - I really need to look into this in more detail.

Once again Many Thanks

[Richlist]

I think the ultimate effect of not allowing landlords to claim the cost of renewals will result in the specification of unfurnished (and part furnished) properties to deteriorate. Market forces may well support the situation short term but longer term more landlords will choose eg not to provide a washing machines or a freezer or a vacuum cleaner or curtains etc etc if they can't offset any replacement cost .

Its a similar situation to the counci tax changes for furnished versus unfurnished property. Now, in my area, any empty furnished rental property is subject to 90% council tax whereas if it were unfurnished council tax is zero for the first 6 months. The result is that there are far fewer private, fully furnished properties on the market.

In both cases its the tenant who ultimately suffers.