Furnished or un-furnished – tax considerations

The decision to rent a property furnished or un-furnished is often made based on your chances of finding a tenant or marketing your property to attract a different kind of tenant. Aside from this there are some tax implications to take into account which may help you make your decision.

If you rent a property fully furnished, you are currently able to claim a Wear and Tear Allowance equal to 10% of the net rent received. HMRC, in simple terms, regard a property fully furnished if a tenant could move in, just bring their clothes and groceries, and Iive there.

If you rent a property unfurnished or partially furnished, this wear and tear allowance is not available to you, and in recent years, you have been unable to claim any renewals allowance on items you provide with your property.

Put simply, you cannot claim the cost of replacing things such as fridges and cookers if your property does not meet the HMRC definition of fully furnished.

HMRC are trying to make the rules about what can and can’t be claimed simpler and in this case it seems to be an all or nothing approach. i.e. The property needs to be fully furnished or nothing can be claimed for renewals.

In the recent budget, it was announced that HMRC would scrap the Wear and Tear Allowance from April 2016, instead landlords of furnished properties will be able to claim for the actual cost of replacing furnishings.

As always, tax savings are only one consideration to make when deciding on how to rent your property out but the are important if you don’t intend to rent it fully furnished.

If you would like to find out more about what allowances you can claim to reduce your tax bill, get in touch and we would be happy to help.