The replacement of domestic items relief enables landlords to claim tax relief when they replace movable items. This includes; furniture, furnishings, household appliances and kitchenware in a rental property. The allowance is available for costs of domestic items such as free- standing wardrobes, curtains, carpets, televisions, fridges and crockery.
The amount of the deduction is based on:
- the cost of the new replacement item, limited to the cost of an equivalent item if it represents an improvement on the old item (beyond the reasonable modern equivalent); plus
- the incidental costs of disposing of the old item or acquiring the replacement; and
- less any amounts received on disposal of the old item.
There is an important distinction between deciding whether or not a new item represents a replacement or an improvement.
If the new item upgraded from the original, deduction is limited to purchasing cost of an equivalent of the original.
HMRC’s internal guidance provides an example highlighting the fact that a brand new budget washing machine costing circa £200 is not an improvement over a 5 year old washing machine that cost £200 at the time of purchase (or slightly less, taking inflation into account).
However, if a replacement item is for a reasonable modern equivalent it isn’t considered an improvement. This means that full cost of the new item is eligible for relief.
For example a new energy efficient fridge replacing an old fridge this is not considered an improvement.