UK Wear & Tear Allowance to become Replacement Furniture Relief in 2016/17

The Government this week issued a Consultation Document to explain their proposals to introduce a Replacement Furniture Relief from April 2016.

The new relief would be available to all types of lettings (except Furnished Holiday Lettings, which are already covered by the Capital Allowances regime) and would reflect actual expenditure on items such as:

·       movable furniture or furnishings, eg. chairs, sofas, tables

·       televisions

·       fridges and freezers

·       carpets and floor-coverings

·       curtains

·       linen

·       crockery or cutlery

·       beds and other furniture

 

Currently, the 10% Wear & Tear Allowance is available only for furnished lettings and is calculated based on the level of rental income; it bears no relation to actual expenditure incurred by the landlord.   The new relief is to be based on actual expenditure incurred on such items.

 

There will certainly be winners and losers as a result of this new relief.  Those landlords of largely unfurnished properties, who perhaps install washing machines, dishwashers etc in their properties will now be able to get tax relief on the replacement products - but not on the initial expenditure.  Those landlords of furnished properties who do not replace the furnishings, but have hitherto enjoyed an allowance for nil expenditure,  will no longer be able to claim tax relief unless they actual pay out for replacement goods.  No tax relief is due on the initial expenditure.

 

Responses to this consultation can be submitted until 9 October 2015.

A Complex Budget from the UK Chancellor

Chancellor George Osborne delivered the first Budget of a Conservative Government for nearly 20 years and managed to pull a few surprises.

The main proposals from April 2017 are:

·       Non-dom status and, thus, access to the remittance basis of assessment, to be lost after more than 15 out of 20 years of residence in the UK; in order to re-acquire non-dom status it will be necessary to be not resident in the UK for five years.  Furthermore,  this measure will also impact on individuals' inheritance tax (IHT) position, effectively reducing the current 17 year "deemed" domicile rule also to 15 years.  It will not impact the non-dom status of children of those who become "deemed" domiciled in the UK after 15 years. 

·       Non-doms owning UK property through an offshore company (a significant IHT tax planning tool), will now get caught under the new "look through" rules so the property will be chargeable to IHT.

·       An additional nil rate band for IHT to be introduced where a property, which, at some point, has been a main residence, is passed on death to a direct descendant. The additional nil rate band will be £100,000 rising to £175,000 by 2020/21 and, like the main nil rate band, any unused amount can be transferred to a surviving spouse or civil partner.   This additional allowance will be available if an individual "down-sizes" or no longer owns their home and can be set against assets of an equivalent value passed on death to a direct descendant.  Estates with a net value over £2million will have this allowance withdrawn on a tapering scale of £1 for every £2 over the £2million threshold.

·       Mortgage interest relief on let property is to be restricted to the basic rate  - 20%.  This restriction will not apply to properties regarded as furnished holiday lettings.

·       Corporation tax will reduce to 19% and fall further to 18% in 2020.

The following measures will apply from April 2016:

·       Individuals will be able to receive a maximum of £5,000 of dividend income tax free; over this limit, graduated tax rates will apply - from 7.5% rising to 32.5% and on up to a top rate of 38.1%.  This measure will impact Owner Managed Businesses and the remuneration strategies of such businesses will have to be re-evaluated in light of this announcement.  

·       Rent-a-Room relief will increase to £7,500 per annum.

·       High earners will see the £40,000 pension Annual Allowance eroded further with a tapering of the relief of £1 for every £2 of income + employer pension contributions over £150,000 or over £110,000 of income excluding employer pension contributions.  Unused Annual Allowance can be carried forward for three years.

·       Death benefits payable by a pension scheme in respect of a deceased member aged 75 or over will no longer be subject to a 45% tax rate; instead the payment will be subject to tax at the recipient's marginal income tax rate.

If you require further explanations or analysis of the July 2015 Budget, please contact either Paulette Peterson or Gerry Sims at info@petersonsims.com