Tax relief for Replacement of Domestic Items

Replacement of Domestic Items Relief (DIR) – what it is 

The Replacement of Domestic Items Relief legislation allows landlords to claim tax relief when they replace (not initial purchase) – allowable domestic items. It only applies to landlords (companies, individuals, and trusts) – who let residential property and not furnished holiday lettings.  

What ‘domestic items’ are claimable? 

Claimable ‘domestic items’ include: 

• Furnishings (carpets, curtains, rugs) 
• Moveable furniture (bed frames, sofas, tables) 
• Household appliances (fridges, freezers, washing machines) 
• Kitchenware (utensils, crockery, cutlery) 

It is worth bearing in mind that fixtures are not domestic items and do not qualify for DIR. Nonetheless, as they are fixtures of the building, the cost of replacing these may be an allowable expense as a repair to the establishment. Fixtures are: 

• Plants or machinery installed or fixed in or to a dwelling-house such that it becomes part of that dwelling-house. 
• Boilers or water-filled radiators installed – as part of a space or water heating system. 

Fixtures may include: 

• Baths 
• Fitted furniture that has become part of the dwelling-house (like built-in wardrobe and cupboards) 
• Toilets 
• Washbasins 

 Conditions for tax relief 

For you to claim tax relief on a new item under DIR – the following conditions must be met: 

• An old domestic item that has been provided for use in the dwelling-house is replaced with the purchase of a new domestic item – for the exclusive use of the lessee in that dwelling-house – and the old item must no longer be available for use. 
• Capital Allowances must not have been claimed – in respect of the expenditure on the new domestic item. 
• The expenditure on the new item must NOT be prohibited by the ‘wholly and exclusive rule’ but should otherwise be prohibited by the capital expenditure rule. This condition prevents relief from being given for the same item twice.  

 The ‘wholly and exclusively’ rule limits deductibility to expenditure incurred wholly and exclusively for business purposes. 

 The capital expenditure rule depends on – whether the accounts of the property business are prepared using the cash basis (automatic for property businesses) or under the accruals basis (apply where the landlord is not eligible for the cash basis). 

 Under the accruals basis, a deduction for capital expenditure is not permitted. Contrarily, under the cash basis, while Capital Expenditure can be deducted, this is subject to several significant exceptions – including a prohibition on a deduction for capital assets used in ordinary residential properties. 

However, a deduction is not allowed if: 

• The dwelling-house is, in full or part, a furnished holiday letting. 
• Rent-a-Room receipts have been received in respect of the dwelling-house, and Rent-a-Room relief claimed. 

Calculation of the deduction 

It is crucial to consider the incidental costs of acquisition or disposal, and any proceeds received from the sale of the old item, Tax relief is calculated as: 

Like-for-like replacement

If the new item is of broadly the same quality/standard as the old item and doesn’t represent an improvement, then the deduction is the cost of the new item. However, where the new item is not substantially of the same standard/quality as the old item, the deduction is equal to the lesser of: 

• The cost of the new item. 

OR 

• The cost that would have been incurred if the old item had essentially been replaced like-for-like. 

Incidental Capital Expenditure

The deduction is increased by the amount of incidental expenditure – if Incidental Capital Expenditure is incurred during the disposal of the old item or the purchase of the new item. Examples of Incidental Capital expenditures are: 

• Delivery costs 
• Installation costs 
• The cost of disposing of the old oven. 

 Consideration was received for the old item

If you dispose of the old item, consideration is made in money or the money’s worth. To get the amount of the tax deduction, the amount received is deducted from the cost of the new asset. For example, if a landlord replaces the carpet in their let property. They sell the old one for £200 and buy a new one of equivalent quality/standard, for £800. The amount of the deduction for Replacement domestic items would be £600. 

Part-Exchange

If you trade the old item for a new item, the deduction equals – the amount expended more than the trade-in value received. For instance, a landlord buys a new oven costing £900. They trade in the old oven for £400 and meet the rest of the cost with £500 of cash. The amount of the deduction for Replacement domestic items would be £500.  

Claiming the relief 

If you are an unincorporated trader, you can claim DIR via your self-assessment return by filling the amount in the relevant box on the property income pages. 

Landlord accountants 

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