HM Revenue & Customs
CT, International and Stamps
100 Parliament Street
The Chartered Institute of Taxation
The Institute of Chartered Accountants in England
Phone 03000 543011
7 April 2014
Renewal basis: CIOT and ICAEW
Renewal basis: CIOT and ICAEW
Dear Mr Slater / Ms Spearman
I write in response to your letter dated 4 February 2014 concerning the withdrawal of ExtraStatutory Concession (ESC B47). Please accept my apologies for the delay in responding.
The level of detail you have provided as background is appreciated and I thank you for this.
Your letter also makes reference to the Technical Consultations which HMRC had published
concerning the withdrawal of extra-statutory concessions. You have advised that uncertainty
exists around the renewals basis for which clarification has been requested on the relief
available to landlords.
For clarity, I have therefore set out the full history behind the withdrawal of the extrastatutory concession.
Relief to property businesses under the non-statutory renewals allowance (BIM46980 and
PIM3230) was an extra-statutory concession (ESC B47) for furnished property. Additionally,
the PIM guidance concession went further than the ESC and covered unfurnished property
also. Both of these concessions were withdrawn following a period of consultation as part of
the review of extra statutory concessions following the House of Lords decision in CIR v
Wilkinson. However, this was not a legislative change.
The House of Lords’ decision in the Wilkinson case clarified the scope of HMRC’s
administrative discretion to make concessions that depart from the strict statutory position. In
light of that decision HMRC reviewed its concessions and published consultations seeking
Information is available in large print, audio and Braille formats.
Text Relay service prefix number – 18001
Director: Judith Knott
A document entitled “Withdrawal of extra statutory concessions -Technical note and call for
evidence” was published on 6 December 2011 explaining the position, which you have
referred to in your letter. Data and evidence was requested by November 2012 on the
potential impact of the withdrawal.
HMRC worked with the British Property Federation (BPF) to find out more about the type of
assets that are likely to be used in semi-furnished and unfurnished lettings and the likely
impact of making the proposed changes.
The BPF is not the only professional body with which HMRC consults on property business
tax issues. However, they were the only body which specifically contacted HMRC in
response to the request for evidence and data made in the document “Withdrawal of extra
statutory concessions – Technical note and call for evidence”. This document was published
on HMRC’s website and would have been picked up at the time on the news-feeds of
relevant lettings publications. By comparison with the usual practice for tax consultations,
the timetable for responses was particularly generous, as evidence could be submitted any
time before the end of November 2012.
HMRC did not receive any evidence to suggest that unfurnished nor semi-furnished property
businesses would be significantly affected. The replies suggested that there was no
standard practice for what items might be found in an unfurnished or semi-furnished property
and that the only items regularly included in such properties are fitted ovens and hobs,
replacement of which would be treated as a repair.
Although a cooker point was a necessity the supply of a free standing cooker or any other
free standing “white goods” was a matter of individual choice and varied from area to area.
In new build developments major kitchen appliances were likely to be integral fittings. In this
case their replacement would come under the category of repairs. The provision of sanitary
and kitchen units was also cited but again replacement of these items would be a repair.
Respondents generally agreed that floor coverings and curtains would usually be supplied.
In addition to the BPF coordinated response, HMRC received a small number of other
replies which reflected the above points. Given the level of response and the fact that it
appeared that the capital expenditure on replacement items would generally be limited to
occasional updates of curtains and carpets, HMRC proceeded with the withdrawal
announced in the technical note. HMRC acknowledged in that note that the withdrawal of the
concession for unfurnished and semi-furnished properties could leave some businesses
worse off but that that would very much depend on the facts of the case. Additionally, the
yield from withdrawing the five listed extra statutory concessions was likely to be relatively
small and was not a significant consideration. However there could be a more substantial
negative impact on the Exchequer if the various reliefs given by the extra-statutory
concessions due for withdrawal in April 2013 were legislated. This was because legislation
could provide unforeseen opportunities for avoidance in a way that concessions do not.
As a result of the withdrawal, concessional treatment does not apply in relation to
expenditure on replacing plant and machinery which is incurred:
on or after 6 April 2013, for the purposes of Income Tax; and
on or after 1 April 2013, for the purposes of Corporation Tax.
Relief for property businesses (furnished and unfurnished) is still available to a limited
extent, as explained below.
Relief is available on repairs for furnished, part-furnished and unfurnished properties.
HMRC Guidance for relief on repairs concerning furnished, part-furnished, and unfurnished
lettings is at BIM46900. This is updated guidance.
Renewals (Statutory Renewals Allowance)
Relief is available under the statutory renewals allowance on renewals for furnished, partfurnished and unfurnished properties. However, the statutory renewals allowance is very
limited in application.
Legislation for this relief is at s.68 ITTOIA 2005 for Income Tax purposes and s.68 CTA
2009 for Corporation Tax purposes. Although the extent to which relief is available on items
is not the same as was the case under the extra-statutory concession.
HMRC Guidance for relief on renewals concerning furnished, part-furnished and unfurnished
lettings is at BIM46960 (Statutory Renewals Allowance). Again, this is updated guidance.
The statutory renewals allowance at s.68 ITTOIA 2005 and s.68 CTA 2009 can be taken out
of context as referring to all items that an unfurnished and furnished property business
previously was entitled to renewals on under the extra-statutory concession. However, this is
not the correct position.
Both s.68 ITTOIA 2005 and s.68 CTA 2009 relate only to items of a capital nature that are of
a relatively low value and have a short useful economic life that would need to be regularly
(almost annually, but not necessarily) replaced in the ordinary course of business due to
normal wear and tear. This would be on items such as crockery and rugs for instance, i.e.
low cost soft furnishings that might be expected to be replaced fairly regularly. However, it
would not apply to carpets, for instance, as they are a capital item of potentially higher value
that you would not expect to regularly replace ordinarily. However, landlords may be able to
get some relief on carpets if the expenditure qualifies as a revenue expense.
White goods such as washing machines and refrigerators are not covered by the statutory
renewals allowance as they are capital items not part of the entirety (the property). However,
where the white goods are fitted (i.e. integrated hobs and ovens), we recognise these are
part of the entirety (the property) and so these would be deductible as a repair when
replaced (see above).
To confirm therefore, anything free-standing, such as a fridge freezer, will not become part
of the entirety (the property) for residential lettings and therefore would not be deductible
under s.68 ITTOIA 2005 / s.68 CTA 2009.
Although the extent to which relief on items is available for semi-furnished and unfurnished
dwellings is not the same as was the case under the extra-statutory concession, I can
assure you that HMRC is continuing to review the impacts of the change.
Relief under s.68 ITTOIA 2005 / s.68 CTA 2009 is not available if relief has already been
claimed under s.308A ITTOIA 2005 or s.248A CTA 2009 for Wear & Tear (explained below)
Your letter referred to an example in BIM46911 of Sophia refitting a kitchen. The example
had been omitted due to a technical error when publishing the updated BIM. I apologise for
the confusion this may have caused and can confirm the example will be added back into
BIM46911. For completeness, I clarify the tax position of that example below.
Replacement of the fridge freezer is capital expenditure on a new asset used in a dwelling
house which is not part of the entirety (the property) and therefore is ineligible for relief as it
is not a repair. For the same reason the replacement is ineligible for relief under s.68 ITTOIA
2005 and s.68 CTA 2009. This is the case whether the residential property is furnished or
unfurnished. Capital allowances are not available for furniture and household equipment
provided for use by tenants in residential dwellings (PIM3010).
Wear & Tear (10% Statutory Allowance)
You have acknowledged that the wear and tear allowance continues to be available for
furnished lettings and so have no query about this. I have therefore merely provided the
information below on wear and tear for completeness.
The statutory wear and tear allowance is only available in respect of fully furnished lettings.
Whether a property is fully furnished or not is a matter of fact. To qualify as a furnished
residential letting the property has to be a dwelling house that is let with sufficient furniture,
furnishings and equipment for normal residential use.
Legislation for the wear and tear allowance is at s.308A ITTOIA 2005 for Income Tax
purposes and s.248A CTA 2009 for Corporation Tax purposes. HMRC Guidance for relief on
furnished lettings is available at PIM3205. This guidance has recently been updated.
Landlords can elect to deduct a wear and tear allowance of 10% of net rent (i.e. rent less
expenses such as utilities, council tax, and anything else the tenant is usually responsible
for) as an expense of their property business.
This election means that instead of claiming relief for replacing utensils or repairing furniture
(under s.68 ITTOIA 2005 or s.68 CTA 2009 as explained above for statutory renewals
allowance), the taxpayers deduct an allowance calculated as a percentage of rents received.
The option to elect for a wear and tear allowance is only available for lettings of furnished
Review of Impact
I can assure you that HMRC will continue to review the impacts of the change. HMRC
continue to liaise with other professional bodies on this and other issues. In addition to
information from external sources, HMRC will be reviewing the evidence that arises in the
course of its compliance work.
Policy and Technical Specialist