In 2007, tenancy deposit schemes were introduced by law.
These allow a tenant to dispute any deductions made on their deposit. Above all, a landlord or letting agent cannot just make deductions. Unlike office leases, a residential occupancy must allow for fair wear and tear. For more information on tenancy deposit schemes click here.
The wear and tear allowance refers to the tax-deductible expenses for landlords. However, this mainly relates to furnished properties. The allowance gave tax relief for the cost of white goods and furniture which is unavailable under capital allowance legislation. Wear and Tear allowance was broadly 10% of gross rental income in 2016.
The challenge with such an allowance is that ‘fair wear and tear’ is not readily determined. This means that landlords cannot charge a tenant for repainting dull walls. Damage done to the property because of the negligence on the part of the tenant is not fair wear and tear. Determining if the damage is negligent or reasonable is often the main source of dispute between the tenant and landlord.
House of Lords defines fair wear and tear as ‘the reasonable use of the premises by the tenant and the ordinary operation of natural forces.’ What is clear legally is that the landlord should not end up in a better financial position. They must accept that there is some fair wear and tear to any property.
The Association of Residential Letting Agents has some guidelines for its members.
This can be used to determine fair wear and tear on a property. Issues to consider are the following:
– Original age, quality and condition of any item a commencement of the tenancy.
– Average useful lifespan to value ratio (depreciation) of the item.
– Reasonable expected use of such an item.
– Number and type of occupants in the property.
– Length of the tenant’s occupancy.
The landlord must provide evidence on the state of the property at the start of the tenancy. To be able to prove in case of a dispute with a tenant.
Wear and tear allowance was of benefit to landlords where their rental incomes were high. The cost of furniture for allowances is low. However, HMRC deemed the wear and tear allowance too generous and abolished it as of April 2016. The relief that came into effect after April 2016 only allows replacing such items on a like to like basis. Landlords cannot qualify for tax relief for buying initial furniture on a rental property. The new relief also applies to all rented residential properties regardless of the level of furnishing. These laws are changing all the time.
If you would like to know more about the wear and tear allowance, don’t hesitate to get in touch. Harringtons Lettings provide landlords in Hove, Brighton, and the surrounding Sussex area with bespoke advice to ensure that they meet current legislation.