Rental Income - Wear & Tear Allowance

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Pete12
Pete12 Registered Posts: 58 Epic contributor 🐘
Hi,

Can anyone explain the 10% Wear & Tear Allowance - how it is calculated, what it is for, what is the underlying rationale and does it achieve what it is meant to? I've been mulling it around for a while and it isn't getting any clearer.

Many thanks

Pete12

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  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    Link.
  • Pete12
    Pete12 Registered Posts: 58 Epic contributor 🐘
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    Dean,

    I was afraid of such an answer!

    The reason I posed what must seem like a ludicrously simple question to most is:

    Rent Receivable = 10000...A
    Insurance + Council Tax + Water Rate + Utilities = 1000...B
    10% W&TA = (10000 - 1000)*10% = 900...C

    I have always assumed the following:

    i) Landlord pays all expenses:
    Taxable Rent = A - B - C = 10000 - 1000 - 900 = 8100

    ii) Tenant pays all expenses:

    Taxable Rent = 10000 - 0 - 900 = 9100

    But an ATT has told me:

    iii) Landlord pays all expenses:
    Taxable Rent = 10000 - 1000 - 1000 = 8000

    iv) Tenant pays all expenses:
    Taxable Rent = 10000 - 0 - 900 = 8100

    Which, if any is correct?

    Many thanks

    Pete12
  • Diddy Mau
    Diddy Mau Registered Posts: 238 Beyond epic contributor 🧙‍♂️
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    Hi Pete,

    I'm sure wear & tear is 10% of income minus Council Tax and Water bill
    So
    Rental Income £10,000
    Council Tax & Water Rates £200
    then wear & tear = 10%x£800=£80
    but this only works if landlord pays for these,
  • PAMDILL
    PAMDILL Registered Posts: 721 Epic contributor 🐘
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    I have just finished studying Personal tax as my final exam and I am sure it is 10% of rental after council tax, rates etc only if the landlord pays them, if tenant pays all those expenses then it would be 10% of rental income, remember as well it is only if the property is furnished as it is to cover wear and tear of the furnishings instead of claiming replacement costs.
  • Pete12
    Pete12 Registered Posts: 58 Epic contributor 🐘
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    I wonder if this is one of those things

    that we think we know, without realising others' understanding is different.

    Diddy Mau, Pamdill - thanks.

    Previously I also thought only council tax/rates, water rates and ground rent should be deducted from the gross rent to calculate 10% W&TA but have been told that insurance (buildings, I assume) and even utility bills (if included in the "rent" ie paid by the landlord) can be included - so my query also relates to scope.

    However the reason I posed the original question is because I "don't get" the thinking behind why - if the landlord pays (whatever is allowed in the W&TA calculation) the W&TA is less. Is it - because those expenses are deducted as expenses incurred by the landlord - that it was decided the W&TA should be reduced in an attempt to be "fair". whereas it was envisaged the W&TA should be maximised if the landlord did not pay (and therefore also could not claim as an expense) just to allow "something"? I don't know whether I'm looking at this from the wrong angle or there is actually no coherent rationale behind the Allowance.

    So:
    i) What should be deducted from the gross rent to calculate W&TA?
    ii) Is this dependent upon landlord actually paying/being responsible for those expenses?
    iii) Can anyone explain the underlying rationale to the calculation of W&TA?
    iv) Can anyone provide a pro-forma?

    This is driving me mad.

    Many thanks

    Pete12
  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    As Pamdill has said, its if the landlord pays council tax and other utilities ie bills the tennent would normally pay.

    You can see the logic, W&TA should relate to only to rent of the building. There's no wear and tear on council tax. Otherwise it would be a loophole for landlords to claim a little more tax relief.
  • Pete12
    Pete12 Registered Posts: 58 Epic contributor 🐘
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    PGM,

    Thanks - that W&TA should only relate to the building is something I hadn't settled in my mind. However, it cant' fully explain the rationale because, if the tenant pays these expenses, the W&TA is greater because it is calculated as 10% of the gross rent...which doesn't fit.

    I can feel sanity gradually ebbing away. Help...

    Pete12
  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    Pete12 wrote: »
    PGM,

    if the tenant pays these expenses, the W&TA is greater because it is calculated as 10% of the gross rent

    Pete12

    If the landlord pays council tax etc, they'll add this cost to the rent.
  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    The W&TA isn't greater.

    Example 1, tenant pays:

    Rent: 10,000
    W&TA: 1,000

    Example 2, landlord pays:

    Rent: 11,000 (now higher in order to cover additional costs)
    Less 1,000 council tax and water rates
    W&TA: 1,000


    The legislation states that expenses to be deducted are those that would typically be paid by the tenant, however, in my experience HMRC have never requested anything other than council tax and water rates to be added back.
  • Pete12
    Pete12 Registered Posts: 58 Epic contributor 🐘
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    PGM, Dean,

    Thank you. I now realise the confusion is due to mis-perception. The landlords I deal with do not add council tax, water rates and ground rent to the rent; they decide upon the rent and "suffer" these expenses; seen in this light it is understandable that they are miffed at - after suffering these expenses - being further "penalised" with a reduced W&TA.

    It is interesting about council tax and water rates; I suspect these are the only items most assume are to be added back (although I have always included ground rent) and from what you have said - this includes the HMRC. However, I was also advised that where satellite tv is included, that this subscription should also be added back. Talk about a can of worms!

    Thank you all. Sanity is returning. I hope the clients do as well.

    Pete12
  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    Pete12 wrote: »
    The landlords I deal with do not add council tax, water rates and ground rent to the rent; they decide upon the rent and "suffer" these expenses; seen in this light it is understandable that they are miffed at - after suffering these expenses - being further "penalised" with a reduced W&TA.

    I rent out a few houses and never do this, seems very strange on the part of the landlord?!

    Are the tenants getting a very good deal or are they just hard to let properties?
  • Pete12
    Pete12 Registered Posts: 58 Epic contributor 🐘
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    PGM,

    The market is very challenging. There has been an explosion of "small/amateur" landlords over the last 15 years, aggressive refurbishments by the bigger builder-landlords and an explosion of institution backed developments in bed with the universities.

    I think landlords decide upon a rent and work from that. It depends on what they can negotiate/get away with. I can understand this approach because it is not unlike the issue of fixed-fees for accountants. Prospective customers often prefer to be presented with a "final" figure. It is more difficult for the "smaller" business to get away with a 'ryanjet' ploy.

    Pete12
  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
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    Pete12 wrote: »
    PGM,

    The market is very challenging. There has been an explosion of "small/amateur" landlords over the last 15 years, aggressive refurbishments by the bigger builder-landlords and an explosion of institution backed developments in bed with the universities.

    I think landlords decide upon a rent and work from that. It depends on what they can negotiate/get away with. I can understand this approach because it is not unlike the issue of fixed-fees for accountants. Prospective customers often prefer to be presented with a "final" figure. It is more difficult for the "smaller" business to get away with a 'ryanjet' ploy.

    Pete12

    There is a lot of people renting out terraced houses in the area I live. I was really finding that area of the market more difficult and more hassles with the tenants. So totally moved away from those, sold up and just have semi detached now. In theory the profit is slightly less, but not once had an empty house or bad debts so its working out much better.
  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
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    Pete12 wrote: »
    The landlords I deal with do not add council tax, water rates and ground rent to the rent..

    They do, they just don't realise it!

    It's not that they add the exact amount of these costs to their rental figure but if you are marketing a property 'inclusive of bills' you can obviously achieve a higher rent than advertising 'plus bills'. If that uplift in rent you can achieve does not cover the additional costs then you have to consider whether it is worth you saving your clients the administrative hassle of taking care of those things themselves.
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