MPs cook up trouble for landlords over white goods
MPs want to turn the heat up on landlords who do not offer tenants cookers and fridges in private rented homes to tenants on benefits.
MPs want to turn the heat up on landlords who don't offer tenants cookers and fridges in private rented homes to tenants on benefits even though tax breaks for providing the facilities were withdrawn by the last government.
The All-Party Parliamentary Group on Hunger is urging ministers to give councils powers to fine landlords who do not offer tenants on benefits at least a fridge and two-ring electrical hob.
The MPs claim the poorest tenants suffer because their homes typically only have a microwave, so they are forced to buy expensive processed food or takeaways rather than cook their own meals.
Labour’s Frank Field, who chairs the group, explained MPs were shocked to meet tenants renting private homes whose kitchens were equipped with a microwave and a kettle. Most had no fridge, cooker or pots and pans.
The problem for landlords is HM Revenue & Customs (HMRC) withdrew tax breaks in April 2013 on white goods for kitchens, and shows no signs of restoring them despite protests from the Chartered Institute of Taxation, accountancy professionals and landlord associations.
Until then, HMRC had granted tax relief as an extra-statutory concession, which is an agreement to offer a tax break that is beyond what the law states is available to claim.
Now, any claim a landlord can make for white goods and furnishings depends on what type of rental business they run and whether the equipment is intended for a specific rented home or general business use.
Property Investor Considerations
The first step for a property investor is to consider which type of let any equipment bought for the business is for, these are:
- Furnished lets, including houses in multiple occupation (HMOs)
- Unfurnished lets
- Furnished holiday lets
- Company-owned lets
- Uncommercial lets
What is a furnished let?
Unhelpfully, tax rules do not define what makes a furnished let, but the general view is a furnished rental home is ‘let with enough furniture, furnishings and equipment for normal residential use’.
That means a tenant should move in with their personal belongings and have somewhere to sleep, sit, cook and eat provided by the landlord.
In the 1996 case of TSB Bank v Botham, the Court of Appeal decided fitted carpets, light fittings and curtains are chattels which do not make a home a furnished let.
A common misconception is a rented home with these items and freestanding white goods is ‘part furnished’. The distinction does not apply for tax. A home is either furnished or not
What is an uncommercial let?
An uncommercial let is a home rented out to someone at much less than a commercial rate.
Tax breaks for furnishings and white goods
Here’s a breakdown of what landlords can claim for furnishings and white goods for each type of property rental –
Initial costs of white goods, fittings and furnishings – No claim allowed
- 10% wear-and-tear allowance (WTA) – Claim every tax year regardless of whether any furnishings or white goods are replaced.
WTA is 10% of net rents after deducting any costs paid for services provided to tenants and rent arrears.
For instance, if the rent is £7,500 a year and the landlord pays £500 towards utility bills, the net rent is £7,500 less £500.
10% of £7,000 is £700, which is the WTA claim included on a tax return.
- Repairs – Repairs are claimed in full, so if an integrated fridge, freezer, washing machine or dishwasher is replaced, this is tax-treated as a repair.
No claim is allowed for replacing freestanding white goods.
Any part replaced in white goods is a repair, whether the appliance is integrated or freestanding.
- Statutory Renewals Allowance (SRA) - This pays for inexpensive furniture, furnishings or equipment with an expected short economic life that are likely to need regular replacement.
HMRC suggests crockery and rugs as claims under SRA.
No claims are allowed for replacing carpets or freestanding white goods.
This is where withdrawing the extra-statutory concession has left landlords out-of-pocket:
- Initial costs – No claims are allowed
- 10% Wear-and-Tear Allowance – No claims are allowed
- Repairs – Claim the same as furnished let landlords (see above)
- Statutory Renewals Allowance – Claim the same as furnished let landlords (see above)
- Replacing carpets, laminate flooring and freestanding white goods - No claims are allowed
Furnished holiday lets
Furnished holiday lets are different from those for buy to lets or HMOs:
- Initial costs - Initial costs of white goods, furniture, furnishings or equipment are offset against the annual investment allowance (AIA).
The AIA is £500,000 until December 2015, when the limit will reset to £25,000. A furnished holiday letting business can write off the initial cost of white goods, furniture, furnishings or equipment up to the value of the AIA in the year when they were purchased.
If the AIA changes during the year, a split-year claim is made.
- 10% Wear-and-Tear Allowance – Not allowed
- Repairs - Claim the same as furnished let landlords (see above)
- Statutory Renewals Allowance - Claim the same as furnished let landlords (see above)
Follow the rules for furnished holiday lets.
No claims allowed.
Tax breaks for general property business equipment
Every property business will have equipment that is not allocated to a specific property, such as:
- Desks, chairs, filing cabinets and bookcases in offices
- Computers, scanners, printers and smartphones
- Vans or cars
- Tools – such as ladders, electric tools, lawnmowers, vacuum cleaners taken from house to house etc
These expenses are offset against the annual investment allowance.
Fit integrated white goods when refurbishing a kitchen to make the replacement a repair in future years to allow a full tax claim.