Tax body highlights 'complexity and confusion' of buy to let tax change

While almost every lettings organisation has been up in arms at the raft of tax changes for landlords suggested by Chancellor George Osborne, he has at least one ally - perhaps predictably, it is the Association of Taxation Technicians.

But while the group says it supports the planned replacement of wear and tear allowance with tax relief on the cost of replacing furnishings, it still has at least one concern over one detailed part of Osborne’s reform.

From April 2016, Osborne’s proposal is that the wear and tear allowance will be replaced with a relief that enables landlords of homes to let to deduct the costs they actually incur on replacing furnishings in the property. The intention - says Osbrone - is that it will lead to more consistency and fairness in the taxation of residential property businesses.

“Under the current system, which was introduced in 2013, tax relief is only available on residential lettings which have been let fully furnished and it can, at times, be tricky for landlords to ascertain whether the furniture provided results in a property being considered fully or only partly furnished. This proposed new method of tax relief will see this problem disappear” says Paul Hill, chairman of the ATT’s Technical Steering Group. 

However, even the ATT - which is a charitable body and describes itself as “the leading professional body for those providing UK tax compliance services” - has concern about HMRC’s proposal to exclude the cost of any ‘improvement element’ of the replacement asset from the amount that can attract tax relief.  

“This part of the proposals has the potential to lead to complexity and confusion and landlords will be looking to HMRC for detailed guidance on how the improvement rule should be applied” says Hill. 

Technological changes in items like white electrical goods mean that a replacement appliance with increased functionality may actually be cheaper than the old appliance or that a like-for-like replacement is simply unavailable. 

Hill says clear guidance is needed on how the new rules will apply in such situations and that guidance will need to be kept up-to-date.