Sarah Bradford explains the mechanism by which landlords letting furnished residential property can secure relief for the cost of domestic items.
Landlords letting residential property cannot claim capital allowances for the fixtures and fittings that they provide. Since 6 April 2025, this applies equally to landlords letting furnished holiday accommodation; prior to this date, capital allowances were available under the former regime for furnished holiday lettings. However, it is not available where a landlord lets one or more furnished rooms in their own home and claims rent-a-room relief.
The lack of capital allowances does not mean that landlords are not entitled to any tax relief for the cost of domestic items provided to tenants. While they are not able to deduct the cost of the original item, a dedicated relief is available for the cost of replacement domestic items. The relief applies equally to individual and corporate landlords.
Meaning of ‘domestic items’
A domestic item is defined in the legislation as ‘an item for domestic use (such as furniture, furnishings, household appliances and kitchenware)’. However, fixtures are expressly excluded from the definition. A ‘fixture’ is an item of plant and machinery that is installed so as to become part of the property. This includes boilers and radiators installed as part of a heating system.
Domestic items that commonly fall within the scope of the relief include movable furniture (e.g., sofas, beds, tables and chairs), furnishings (e.g., curtains, carpets and rugs), household appliances (e.g., fridges, freezers and washing machines) and kitchenware (e.g., crockery and utensils).
However, the relief does not apply to items such as baths, toilets, washbasins and fitted furniture, such as a fitted kitchen. These count as fixtures.
When does the relief apply?
The availability of the relief is contingent on four conditions being met.
The first condition is that the individual or company looking to claim the relief is carrying on a property business that includes the letting of one or more dwelling houses. This now includes landlords letting furnished holiday accommodation.
The second condition is that an old domestic item that has been provided for use in the dwelling house is replaced with the purchase of a new domestic item. Further, the old item must no longer be available for use by the tenants and the new item must be available for their exclusive use.
The third condition is that the expenditure on the new item must be incurred wholly and exclusively for the purposes of the property business. Further, the landlord must not otherwise be able to claim a deduction for the capital expenditure.
Landlords preparing their accounts using the accruals basis are not able to deduct capital expenditure in calculating their profits. However, landlords who use the cash basis (which is the default basis of accounts preparation where annual rental income is £150,000 or less) can deduct capital expenditure unless it is of a type for which such a deduction is not permitted. Landlords within the cash basis can only claim relief for replacement domestic items if the expenditure is not deductible in the computation of profits under the cash basis expenditure rule. As the cost of most domestic items can be deducted by landlords using the cash basis to prepare their accounts, the relief for replacement domestic items is predominantly of relevance to landlords using the accruals basis.
The final condition is that capital allowances must not have been claimed on the new domestic item. Prior to 6 April 2025, landlords letting furnished holiday lettings were able to claim capital allowances.
Nature of the relief
Relief for expenditure on replacement domestic items is given as a deduction in computing the profits of the property rental business. However, the deduction is capped at the cost of a like-for-like item, plus any costs of acquisition and disposal.
HMRC will accept that an item is a like-for-like replacement if it is of broadly the same quality and standard as the old item. The fact that the item is new does not in itself make it an improvement over the old item. For example, if a mid-range washing machine is replaced with a similar mid-range washing machine for broadly the same price allowing for inflation, the replacement will count as a like-for-like replacement.
However, where the replacement item is not of the same quality and standard as the original, the deduction is capped at the lesser of the cost of the new item and the cost that would have been incurred had the new item been a like-for-like replacement of the old item. A deduction is denied for any enhancement element.
Example 1: Partial deduction on upgrade
Ali is a landlord letting furnished residential flats. One of the flats needs a new washing machine. The old washing machine was a budget model. Ali replaces it with a washer-dryer costing £550. Had he chosen an equivalent budget model, the cost would have been £210.
Although Ali spent £550 on the new washer-dryer, he is only able to deduct £210 in respect of the replacement item in calculating his taxable rental profits.
Where a landlord upgrades a domestic item, a deduction for the enhancement element is not available at the time of the upgrade. However, when the upgraded item is replaced, the landlord will be able to deduct the cost of an equivalent item. So, in Example 1, while Ali is unable to deduct £340 of the cost of the washer-dryer when he purchases it, if in a few years’ time he replaces the washer-dryer with an equivalent model, which due to inflation costs £600 at that time, he will be able to deduct the full £600 when calculating his taxable rental profits.
If the replacement item is inferior to the original item, the full cost can be deducted.
Incidental expenditure
It is likely that when replacing a domestic item, the landlord will incur related costs, such as the cost of the delivery and installation and the cost of disposing of the old item. These costs can also be deducted in addition to the cost of the replacement like-for-like item.
Example 2: Relief for delivery, installation and disposal costs
Bella lets out her holiday home as furnished holiday accommodation. She replaces the oven with a like-for-like replacement costing £700. She also pays £50 for delivery and £100 for the oven to be installed. She pays a further £75 for the disposal of the old oven.
Bella is able to claim a deduction for the cost of the replacement oven, and also for the cost of delivery, installation and disposal – a total deduction of £925.
Part exchange
The old item may be given in part-exchange for the new item, reducing the amount that the landlord pays for the new item. Here, the deduction is the amount that the landlord pays on top of the trade-in value (assuming the replacement is equivalent to the old item).
For example, if a landlord trades in an old fridge for an equivalent new model costing £300 and receives £30 for the old fridge, the landlord would be able to deduct £270.
If the replacement is superior to the original item, the deduction is capped at the cost of a like-for-like replacement less the trade-in allowance.
Sale proceeds from the old item
The landlord may be able to sell the old item. Where this is the case, any proceeds are deducted from the cost of the new items in working out the amount of the relief.
For example, if a landlord buys a replacement washing machine for £400 and sells the old one for £50, assuming the replacement is a like-for-like-replacement, the landlord will be able to deduct £350 (i.e., the cost of the replacement less the proceeds from the sale of the old washing machine). If the replacement is superior to the original item, the deduction is capped at the cost of a like-for-like replacement less the sale proceeds.
Practical tip
When replacing domestic items in a residential or holiday let, remember to claim relief for the cost of a like-for-like replacement where a deduction is not otherwise available for the cost of the item.
