New Lamps for Old

Last week I talked about the !)% rule to save some tax. This week i'm going to touch on the "RENEWALS BASIS" method.

'What is the 'renewals basis' method?'

The renewals method allows you to offset the cost of 'renewing' or 'replacing' an item in a property.

This replacement method can be used for a fully furnished property, an unfurnished property' or even a partly furnished property.

Unlike the 10% wear and tear allowance, there are no restrictions as to when this rule can be used.

However, there are some important points of which you should be aware if you decide to use this method.

a) You cannot offset the initial cost of an item! This is a VERY IMPORTANT point, which many landlords get caught out with.

If you purchase a property and decide to fully furnish it with new or even second-hand items, then you CANNOT offset the cost of providing these furnishings.

You can only offset the costs of these furnishings when you come to RENEW them!

b) If you use this allowance, then it MUST be used for the duration of the property ownership.

You cannot move to the 10% wear and tear allowance at a later date.

How to decide which method to use?

There are a number of factors you should consider before deciding whether to use the 'renewals basis' or the '10% wear and tear' allowance.

These are outlined below.

a) Furnished, unfurnished, or partly furnished? Remember, you can only use the 10% wear and tear rule for a fully furnished property! The 'renewals basis' can be used for an unfurnished, partly furnished, or even a fully furnished property.

b) Consider the cost of fully furnishing a property! If you are buying a property and are going to let it out fully furnished, then you MUST consider the costs you are going to incur in initially furnishing it.

If the cost is going to be high, then it may be better use the 10% wear and tear allowance.

This is because of the following.

You will be providing high-quality furnishings and will not expect to replace them for a good few years, i.e., 5-7 years.Therefore you will have to wait this period of time before you can claim the 'renewals' basis.

If you decide to sell the property before you renew the furnishings, then by using the 'renewal basis,' you will not have managed to offset any renewals cost at all against your property. However, if you use the '10% wear and tear allowance,' then you can claim this from the date you purchased the property.

c) Consider how often you will need to replace the furnishings.

If you believe that you will need to renew them on a regular basis, i.e., 2-3 years, then it may well be beneficial to use the 'renewals basis.'

This may particularly be the case if you are providing accommodation to students.

If you don't expect to replace it for at least 5 years, then the '10% wear and tear' rule may be more suited.

d) Consider when you plan to sell.

If you plan to sell the property quickly, i.e., in less than five years, then it is extremely unlikely that you will want to by new furniture.

Again, you might be best suited to opt for the 10% wear and tear method.

I hope you found this brief outline useful.

Saving tax could not be easier!

So, happy investing, and watch this space for some more interesting property tax-related services coming soon.

If you have any questions on this or any other tax-savings methods, please email me at helpdesk@taxrefundmoney.co.uk

Confucius