From the 6 April 2013, HMRC have removed Extra Statutory Concession B47 (“ESC B47”) thereby removing the ‘renewals basis’ for replacing assets in a furnished property letting business. In order to avoid confusion, a furnished property is clarified in section 308B(1)(b) of IITOIA 2005 which states that the house must have “sufficient furniture, furnishings and equipment for normal residential use”. In other words, a tenant must be able to move in and live without being required to provide anything other than their clothing and food. They may choose to bring in TVs, computers and similar items, but they could live in the property comfortably without these items. However, the definition of “Normal residential use” is not clarified in legislation and some landlords (and agents) have been known to try and stretch this definition to benefit from the generous 10% allowance. However, HMRC have always taken a view that the property should contain – at a minimum – beds, chairs, tables and a cooker. In reality, most people know what a furnished property is, when they see one and it may be the case of asking “would you move in and live there easily?” Up to 5 April 2012, anyone letting a qualifying furnished letting property had the option of either taking a deduction against rental income for the actual cost of replacing furniture and appliances (but not the initial purchase of either category) within the property; or making a claim for the 10% wear and tear allowance against net rental income. For the 2013/14 and subsequent tax years, owners of a furnished rental property will only be able to make a claim for the 10% allowance (s308A-C IITOIA 2005). This could have a significant effect on the rental income of clients where there are high turnover of tenants with high levels of replacing furnishings - for example student accommodation where furnishings are replaced more frequently. It should be noted that there has been no change to the ability of the landlord to claim the cost of genuine repairs in the year the expense is incurred or on replacing furnishings that would be found in unfurnished properties. This will include replacements of bathroom and kitchen fittings. The exclusion of claims for capital allowances on plant used in a dwelling house (s35(2) CAA 2001) remains in place as does s68 IITOIA 2005 which allows the renewals basis for small tools to be claimed although this is not likely to benefit many landlords. If you have any queries on this please contact one of our advisers on 0844 892 2470.