The end of Renewals Allowance

Q. What was Renewals Relief?

A. A concession which allowed individuals and companies a reduction in revenue which could be made against property income for capital expenditure for items such as replacing furniture, fixtures and fittings.

In April of this year HMRC ended this concession, although the renewing of trade tools is exempt from this change.

Q. Who is affected?

A. The removal of this allowance affects any traders but it has perhaps hit landlords of residential properties the hardest who unlike their commercial counterparts and most other businesses are unable to claim capital allowances on plant and machinery installed in their properties.

Q . How did this used to work?

A. Renewals Allowance could not be claimed for the first purchase of an item of plant so using a residential landlord as an example, there would be no deduction for buying the first cooker installed, the landlords could previously only claim on subsequent replacement cookers although the any amount received for the sale of the old cooker was deducted first.

Q . So what happens now?

A. The 10% Wear and Tear allowance remains in force where landlords can claim wear and tear as 10% of the rent he/she receives. In some cases this may mean a landlord is actually better off but not in all cases and can only be claimed for fully furnished properties and not unfurnished residential accommodation. Therefore it is landlords with unfurnished properties who will now be unable to claim any tax relief on replacing items such as sinks, baths, cookers and so forth.

Q. What about the Annual Investment Allowance (AIA)?

A. The increased rate of AIA, which was raised in the last budget will end at the end of 2014 and from 1 January 2015 will revert back to the level of £25,000. Rates at which remaining plant can be written down both for normal plant and plant integral to the building are also being reduced. Therefore it makes sense to speak to your accountant now and see how you can maximise current levels and avoiding missing any tax opportunities.

Every business will be affected by the removal of Renewals Allowance differently so we advise you, if you have not already done so, to speak to an expert today.

For further information about the removal of Renewals Allowance call your local MFW office or visit our taxation area of our website for details of our services.

Phillip Kearsey
Tax Manager, Herne Bay office