rental income tax and capital allowances

Hi all

Can someone clarify the following (which has me incredibly confused as I get different answers depending who i ask!)

I bought my apartment in 2005. I live there for 5 years and then I moved in with girlfriend (now wife) So I've been renting it out since October 2010.

Can I claim capital allowances on things like carpets, curtains, furniture etc that I bought when I initially moved in (in 2005) on rental income earned since I started renting it out. One accountant is saying you can't claim on pre-letting expenses but surely capital allowances is different since you kit out a house / apartment before you start renting it

Any help would be much appreciated
David

I'll quote myself from a previous thread on this topic:
http://www.askaboutmoney.com/showthread.php?t=171272&page=3

mandelbrot said:

Wear & tear allowances under S.284 are only ever granted on the basis of the actual cost of the asset in question - S.284(2)(ad) "Where capital expenditure is incurred on or after 4 December 2002 on the provision of machinery or plant a wear and tear allowance for a chargeable period will be of an amount equal to 12.5 per cent of the actual cost of the machinery or plant"

I think we had a thread on here before about the allowability or otherwise of capital allowances on fixtures & fittings in houses that were originally PPRs and subsequently become rental properties. S.284(6) & (7) state

"Wear and tear allowances are also available in respect of capital expenditure incurred on fixtures and fittings (for example, furniture, kitchen appliances, etc) provided by a lessor for the purposes of furnishing rented residential accommodation. The allowances are available only where the expenditure is incurred wholly and exclusively in respect of a house used solely as a dwelling which is, or is to be, let as a furnished house on bona fide commercial terms in the open market."​

A strict interpretation of this would suggest that no wear & tear may be due, but Revenue policy would appear to be that it is only equitable to allow wear & tear.​

S.287 sets out provisions for wear & tear allowances to be deemed to have been made. It states inter alia;
"The normal wear and tear allowance for a chargeable period is to be calculated on the basis that —
• the trade had been carried on by the person concerned ever since that person acquired the machinery or plant in such circumstances that the full amount of the profits or gains of the trade were chargeable to tax,
• since its acquisition by the person concerned the machinery or plant had been used by that person solely for the purposes of the trade,
• a proper claim had been made by the person for a wear and tear allowance in respectof the machinery or plant for every relevant chargeable period,"​

The meaning of all of which is that in the case of a PPR becoming a rental property, if any wear & tear is to be allowed it should be calculated on the basis that 12.5% the original cost p.a. has already been claimed for the prior years of ownership. So in the case of an asset that was 3 years old at time of first letting, it will be introduced at its original cost, already written down by 37.5%, with 62.5% remaining to be written off over the remaining 5 years.​

(All of the quotes above are taken from Revenue's Notes for Guidance ([broken link removed]), as they read more easily than the actual legislation itself.)

Click to expand...

Essentially, you need to:

1. work out the cost of all the capital items of furniture & fittings (note, only things that don't become fixed to the structure of the house in such a way that they can't be easily removed without damaging the item or the house).
2. establish the cost of each item, and the year acquired.
3. each item has an 8 year tax-life, so you reduce it's cost by 12.5% for each year owned until after 8 years it is written down to nil.
4. In 2010 the sum of the 12.5% on each of these items will be your wear & tear claim for the year.