Isabella Carter
There is no clear statutory definition of what constitutes a furnished property for tax purposes. However, it is generally agreed that a furnished property must contain essential furniture, furnishings, and equipment to enable normal occupation or residential use. This typically includes beds, tables, chairs, sofas, white goods, and kitchen equipment. The provision of nominal furnishings, such as curtains and carpets, is not sufficient to meet the requirements for a furnished property. Landlords can claim tax relief for the depreciation of plant and machinery within a residential property, known as the wear and tear allowance, which covers the cost of extra furnishings. For furnished holiday lettings (FHLs), capital allowances can be claimed on furniture, including white goods, under the 'plant and machinery' code.
| Characteristics | Values |
|---|---|
| Legislation | A furnished residential property must have "sufficient furniture, furnishings and equipment for normal residential use." |
| Basic essentials | A tenant should be able to move into a house that is totally liveable, containing items such as wardrobes, drawers, beds, tables, etc. |
| Kitchen | A fully equipped kitchen with white goods, such as a cooker, fridge, and washing machine. |
| Other items | Carpets, curtains, cutlery, and a television. |
| HMRC definition | "To be classed as furnished, the property must comply with the Stamp Office definition of 'furnished', which means the tenant can move into the property without having to take any furniture with them." |
| Other furnishings | Sofa, dining table and chairs, and beds. |
| Wear and tear allowance | Until 2016, landlords could claim a 10% wear and tear allowance for the depreciation of plant and machinery within a residential property. |
| Replacement of domestic items relief | Since April 2016, landlords can claim relief on the replacement of domestic items rather than the initial purchase. |
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What You'll Learn
Reliefs and tax savings
One such relief is the 'replacement of domestic items relief', which allows for the replacement of domestic items that are capital in nature to be offset against property rental income. This relief came into effect on 6 April 2016, replacing the previous 'wear and tear allowance', which allowed landlords to claim a 10% relief for the depreciation of plant and machinery within a residential property. While the wear and tear allowance is no longer available, it is important to note that it previously provided tax relief for items such as cutlery, carpets, and televisions, which are considered extra furnishings in a furnished letting.
For Furnished Holiday Lettings (FHLs), there are special tax treatments. FHLs are treated as a trade for capital allowance purposes, and FHL businesses can claim capital allowances on furniture and white goods. These capital allowances are given under the 'plant and machinery' code and can result in a 100% write-off in the year of purchase. However, it is important to note that FHL losses cannot be offset against a person's other income, and FHLs in the UK and another country within the European Economic Area are treated as separate businesses for loss offsetting purposes.
In terms of tax savings, it is worth considering tax-saving mutual funds, such as those suggested by Clear, which can provide high returns. Additionally, good record-keeping practices are essential for monitoring rental property progress, preparing financial statements, and identifying sources of receipts. Proper documentation can help with tax returns and support items reported on tax returns, reducing the risk of additional taxes and penalties during an audit.
Lastly, it is important to understand the distinction between commercial and non-commercial property. Renting property for commercial purposes can be treated as income from house property, and subletting income is not treated as income from house property. Deemed ownership, where the person exercising control over the property is considered the owner, is also a concept to be aware of to prevent tax evasion practices.
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Essential furniture
There is no statutory definition of what constitutes a furnished property, but legislation states that a furnished residential property must have "sufficient furniture, furnishings and equipment for normal residential use". This means that a tenant should be able to move into a house that is totally liveable, containing items such as beds, drawers, tables, chairs, sofas, and a cooker.
The definition of "sufficient furniture" varies depending on the type of tenant. For example, corporate tenants in high-end areas like London tend to expect higher-quality furniture and fittings, whereas most tenants on an Assured Shorthold Tenancy will expect at least carpets and curtains, even if the landlord does not provide white goods.
It's worth noting that the provision of nominal furnishings will not meet the requirement of "sufficient furniture". For example, white goods alone do not constitute a furnished flat, and there must be sufficient beds, tables, and chairs, plus a fully equipped kitchen, to enable a tenant to move in without incurring additional expenses.
Landlords should also be aware that furnished lettings could expose them to possible legal action in respect of those furnishings.
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Wear and tear allowance
The wear and tear allowance was a tax relief designed to allow landlords to claim a 10% relief for the depreciation of plant and machinery within a residential property. This was calculated by taking 10% of the net rent received for the furnished residential letting. To work out the net rent, charges and services that would usually be borne by the tenant but are instead borne by the landlord (e.g. water and sewerage, council tax) are deducted.
The wear and tear allowance covers the cost of extra furnishings that would not be expected in an unfurnished letting, such as cutlery, carpets, and a television. However, there is no clear distinction between what is considered an 'extra' furnishing and what is essential.
To qualify for the wear and tear allowance, a property must be a furnished residential letting, meaning it must have sufficient furniture, furnishings, and equipment for normal residential use. Essentially, this means that a tenant should be able to move into the property without incurring additional expenses. Examples of furniture that would qualify a property as furnished include beds, drawers, tables, chairs, sofas, and a cooker.
It is important to note that the wear and tear allowance is no longer available. It was abolished in April 2016 and replaced with a new relief called the 'replacement of domestic items relief'. Additionally, the renewals basis covers the same types of furnishings as the wear and tear allowance, but it cannot be claimed if wear and tear allowance has already been claimed on the same furnishings.
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Part-furnished properties
There is no clear definition of what constitutes a "part-furnished" property for tax purposes. However, a furnished property is generally understood to contain enough furniture and equipment for "normal residential use". This means that tenants should be able to move in without bringing their own furniture.
Furnished properties typically include essential items such as beds, wardrobes, drawers, tables, chairs, sofas, and other basic furnishings. A fully equipped kitchen may also be expected, including white goods such as a cooker, fridge, and washing machine. These additional items are often referred to as constituting a "part-furnished" property, although this term does not carry a specific definition for tax purposes.
Until 2016, landlords could claim a ""wear and tear allowance"" of 10% on the net rent received for furnished residential lettings. This covered the cost of extra furnishings not typically found in an unfurnished property, such as cutlery, carpets, and televisions. However, this allowance was abolished in 2016 and replaced with a "replacement of domestic items relief", which allows relief on the expenditure of replacing domestic items rather than their initial purchase.
It is important to note that the demand for furnished properties varies across different regions and sectors of the lettings market. Fully furnished properties are often sought after by corporate clients or for short-let markets, such as luxury holiday accommodations. However, providing a fully furnished property may also narrow the letting market and increase the risk of voids if the market is not correctly gauged.
When deciding whether to furnish a rental property, landlords should consider the potential benefits and drawbacks in terms of rental income, market demand, and maintenance responsibilities.
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Furnished holiday accommodation
AIA is a 100% write-off in the year in which the item is bought. This relief is more favourable than the replacement of domestic items relief applicable to ordinary letting, as there is no need for expenditure to qualify. However, the rule that allowed losses on FHLs to be offset against a person's other income no longer applies. Losses of an FHL business can now only be carried forward. If the same landlord has FHLs in the UK and another country within the European Economic Area (EEA), they are treated as separate businesses for loss offsetting.
To qualify as furnished holiday accommodation, the property must be available for letting for at least 210 days in the year and actually let for at least 105 days.
A furnished property is one that is capable of normal occupation without the tenant having to provide their own furniture. This includes beds, chairs, tables, sofas, a cooker, and other furnishings. White goods alone do not constitute a furnished property. A fully-equipped kitchen is required, along with sufficient furniture and equipment for normal residential use.
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Frequently asked questions
A furnished property is one that has enough furniture, furnishings, and equipment for normal residential use. This means that a tenant should be able to move in without bringing their own furniture. Furnished properties typically include items such as beds, tables, chairs, sofas, cookers, carpets, curtains, and white goods.
For tax purposes, a furnished property is one that is capable of normal occupation without the tenant having to provide their own furniture. The provision of nominal furnishings is not sufficient. If a property is only partly furnished or unfurnished, certain tax allowances, such as the wear and tear allowance, may not apply.
The wear and tear allowance is a tax relief that was previously available for landlords of furnished residential properties. It allowed landlords to claim a deduction for the depreciation of furniture, furnishings, and equipment within the property. The allowance was typically calculated as 10% of the net rent received for the furnished letting. However, it is important to note that the wear and tear allowance was abolished in April 2016 and replaced with a new relief called the "replacement of domestic items relief".
