What is the Replacement of Domestic Items relief for landlords?

Full answer

The Replacement of Domestic Items relief is the current mechanism landlords use to get tax relief for replacing furnishings and equipment in a let residential property, and it works quite differently from the older, simpler allowance it replaced. **Why the old Wear and Tear Allowance was abolished** Before April 2016, landlords of furnished residential properties could claim a flat 10% Wear and Tear Allowance against their rental income each year, regardless of whether they had actually replaced any furnishings that year -- this simple, automatic deduction was criticised as being poorly targeted (benefiting landlords who spent nothing on replacements just as much as those who did) and was abolished, replaced by a relief based on actual expenditure. **How Replacement of Domestic Items relief works** Under the current rules, landlords can deduct the cost of REPLACING a domestic item used in a furnished (or part-furnished) let property -- such as sofas, beds, wardrobes, carpets, curtains, fridges, washing machines, crockery and cutlery -- but crucially cannot claim for the INITIAL cost of first providing these items when a property is first let, only for subsequent like-for-like replacements. **The like-for-like cap** If a landlord replaces an item with a significantly better or more expensive equivalent (for example, upgrading a basic washing machine to a premium smart model), the deduction is capped at the cost of a reasonably equivalent modern replacement of the original item -- any additional cost representing a genuine improvement, rather than a straight replacement, is not deductible as a revenue expense (it may instead be treated as capital expenditure). **What is not covered** Structural fixtures that are part of the building itself, such as fitted kitchens, bathroom suites, boilers, and central heating systems, are generally not covered by this relief -- these are typically treated as part of the property structure and may instead potentially qualify for capital allowances (in limited circumstances) or affect the capital gains calculation on eventual sale, rather than being deducted as a straightforward rental expense. **Deducting the disposal proceeds** If a landlord sells or otherwise receives money for the old item being replaced (for example, part-exchanging an old washing machine), the proceeds received must be deducted from the amount claimed as relief, since the relief is intended to cover the landlord's net cost of replacement, not the full replacement price if some value was recovered from the old item. **Worked example** A landlord replaces a worn-out sofa in a furnished rental property with a similar new sofa costing £600, receiving no money for the old sofa (which was disposed of). They can deduct the full £600 against their rental income for that tax year. If they had instead bought a significantly more expensive designer sofa costing £1,400, they could still only deduct the cost of a reasonably equivalent standard replacement (say £650), with the remaining £750 not deductible as a straightforward replacement expense. **Practical tip** Keep receipts and a clear description of both the old and new items when claiming Replacement of Domestic Items relief, particularly where an upgrade is involved, since HMRC can query claims that appear to include an element of improvement rather than genuine like-for-like replacement.

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