Property Rental – An inventory is now a necessity

April 2016 seems a long time ago, but for those of you with rental property it was the start of many changes to the way rental property is taxed.

The wear and tear allowance was repealed in April 2016 leveling the playing field for landlords renting furnished, partially furnished or unfurnished property but if you have rented furnished property for a number of years the accounts from April 2017 will have complexities which you may not as yet have considered.

The new Replacement of Domestic Items Relief gives relief for items purchased to replace those supplied in rental property. There is no relief for the initial expenditure, meaning the cost of setting up a property to be let as furnished, will receive no tax relief at all. The Nationwide Building Society in May 2016 published a survey which estimated the cost of furnishing a 3 bedroom property to be £15,215! Of course it will not be necessary to spend this amount on a rental property but whatever the outlay, to receive no tax relief will be a blow, especially if you have always claimed the Wear and Tear Allowance in the past.

There is a further blow to come from the Replacement of Domestic Items Relief. When you actually come to replace a dilapidated item, any improvement from the old item cannot be claimed. For example; a dilapidated sofa is replaced by a new sofa bed. The cost of a new sofa is £400 but the new sofa bed costs £550. The value of the ‘improvement’ is the difference i.e £150 and so would not be allowed as an expense.

There is a little leeway in that the legislation does allow for a modern equivalent so, for example, an old washing machine could be replaced like for like with a new model which will inevitably be technologically advanced, however the relief would not apply to an old washing machine being replaced with a washer/dryer.

Replacement of Domestic Items Relief is given for ‘domestic items’ which includes:

• Moveable furniture
• Furnishings such as carpets, curtains and linen
• Household appliances such as fridges and freezers
• Kitchenware such as crockery and cutlery
• Televisions

And these items must be provided solely for the use of the tenant within the residential property. An inventory has been something which professional letting agents have always provided to secure the landlord ad the tenant however it is now increasingly important to make and retain an inventory together with the receipts for any items replaced within the rental property. If the inventory has a good description of the item it will be an easier process to demonstrate a like for like replacement and to claim the full cost against the rental income.