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I'm about to re-furnish one of my flats and I wonder how I should account for the new as well a replacement furniture.
1. When I get rid of furniture do I need to balance my furniture and fixings account in any way?
2. I've understood that I can only reclaim the same amount as the original value of the furniture I replace against my rental income. The amount that is an improvement is a capital tax. However, should I use the original value or the depreciated value?
3. Can I claim the new (not replacement) furniture against my rent or is it also a capital expense?
4. Does the depreciation of my new furniture affect my P&L as the years go by or will the furniture asset account simply depreciate and be balanced with an accumulated furniture depreciation account?
Any help would be great to get as I'm putting together a business plan and need to get the basics right - also good to check if my accountant knows what they are doing...
To answer your questions:
1. Technically you should write off the remaining balance on the furniture thrown away however generally most people do not bother as it is too much trouble and doesn't affect the figures by that much.
2. No the reclaim is on a like for like basis ignoring cost. The example HMRC used in their Consultation Document was that of a washing machine being replaced by a washer drier. If the cost of the washer drier is £420 but a straight washing machine would be £360 then you can claim for the £360 as a deduction and the balance is as you say capital. the amount you claim is the current cost of a replacement machine and has nothing to do with the historical cost or depreciated value of the machine being replaced.
3. You cannot claim for the cost of new furniture that is purely capital expenditure.
4. The depreciation of the furniture does hit the P&L as the years pass and will impact on the dividends you can take.
Nigel Reynolds FCCA CMgr FCMI
Property Tax Specialist
Reynolds and Co
Thank you for your swift an detailed reply Nigel!
Could you please develop point 4 a bit more:
- Can I count the annual depreciation of the furniture as an expense (ie revenue cost)?
- How does it effect the dividends I can take?
do you operate as a company ?
Director of Tax Peplows Limited
CTA ACA FCCA
Can I quiz you on your point 3 please ?I have a long established BTL that has always been unfurnished.This year I wish to change it to furnished.
Do I submit the costs of the new furniture as expenses or ....
In the first year wehre you buy the furniture you cannot claim anything as a tax deduction. I recommend clients to buy pre-owned furniture (clients usually buy on eBay) in order to reduce cost and then when they replace it buy what they originally planned. In this way the intial cost is low so the loss is not too great, then replace it with what yu originally planned to spend and get the higher tax deduction.
No you cannot claim the depreciation as an expense it is not an allowable deduction for tax purposes. As for the dividends it reduces the profits and hence the amount available for distribution as a dividend.
Thanks but if the depreciation does not affect P&L as an expense how does it affect it?
The cost would only affect my profits and dividends the year I buy the furniture - or am I missing something?
The furniture depreciation appears to be a bit unnecessary, because I should still be able the original cost and not the "real" depreciated value as a capital expense when selling the property?
The depreciation is an expense in the P&L but it is not an allowable deduction for tax purposes.
If my profits are reduced I will pay less corporation tax/income tax - or is the expense after tax?