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This post will help you to understand what is meant by the term fixtures and fittings and when you can offset the replacement of them against your income tax.
What are Fixtures and Fittings?
These are items that are classed as being an integral part of the property. If a new tenant moves into a property, then they will expect these items to be in the property.
Examples of fixtures and fittings include:
- windows, doors, light fittings;
- kitchen units;
- bathroom suites;
- gas central heating systems and radiators or hot water supply tanks;
- gas fires, etc.
The most important point to understand about fixtures and fittings is that any cost incurred in repairing them or replacing them with a like-for-like product can be offset against the property rental income. This is regardless of whether the property is unfurnished, partly furnished, or fully furnished.
Replacing Fixtures and Fittings
Two important conditions must be satisfied before you can offset the cost of replacing fixtures and fittings. These are the following.
a) The cost must be a ‘replacement’ cost. In other words, it cannot be for the installation of fixtures and fittings that were not previously in the property.
b) The cost must be for a similar, like-for-like product.
If both these conditions are met, then the cost can be deducted from the rental profits.
Whenever you decide to replace existing fixtures and fittings, they are likely to fall into one of the following three categories:
a) like-for-like replacement;
b) like-for-like replacement but with capital improvements;
c) replacement with superior fixtures and fittings.
Each of the above scenarios is treated differently when it comes to calculating your income tax bill, and each is illustrated in the following sections.
Like-For-Like Replacement of Fixtures and Fittings
If you replace existing fixtures and fittings with similar like-for-like products, then the entire cost can be offset against the income tax bill.
Replacing Fixtures and Fittings with Like-for-Like – Example Part 1
Alex has been renting out his buy-to-let property for seven years and decides that it is now time to change the bathroom suite.
He finds a similar bathroom suite of comparable quality that costs £500. The cost of having the old suite removed and the new one fitted is also £500.
This means that the entire project costs £1,000.
This whole amount can be offset against the annual rental income.
What if it is Not Possible to Replace Fixtures and Fittings with Like-For-Like?
HMRC appreciate that it is not possible to replace with a like-for-like product in all instances. This is especially true if you are replacing something that is several years old as a like-for-like product may no longer be available.
In such circumstances, it is possible to replace with a superior item, especially if it is of a similar cost.
Replacing Fixtures and Fittings with Like-for-Like – Example Part 2
Alex also decides to replace the wooden, single-glazed windows as they are starting to rot. The windows are more than 10 years old.
The cost of replacing with similar single-glazed windows is £3,500, and this includes the fitting and removal of the old, rotten windows.
However, the cost of replacing the windows with UPVC double-glazed windows is cheaper and costs £3,400. This price also includes the fitting and removal of the old windows.
Although the UPVC double-glazed windows are of a superior quality, HMRC accept that these types of windows are the ‘standard’ in all new build properties.
Therefore, it is possible to use these as replacements and offset the entire cost incurred.
Like-For-Like Replacement of Fixtures and Fittings But with Capital Improvements
If you replace the existing fixtures and fittings with a like-for-like product but also make a capital improvement, then you can only offset the cost of the like-for-like replacement.
Replacing Fixtures and Fittings with Like-for-Like but with Capital Improvement – Example Part 3
Alex also decides to replace the kitchen units.
The cost of replacing the kitchen units with like-for-like replacements is £1,600. However, he has some additional space that he wishes to utilise, so he orders an additional three units at a cost of £600.
Alex is able to offset the cost of the £1,600 like-for-like replacement against his rental income.
However, the additional three units are treated as a capital improvement, and this cost cannot be offset against the rental income.
Instead, the cost of the additional units can be offset against any capital gain arising when the property is sold.
Replacement of Fixtures and Fittings with Superior Fixture and Fittings
If you replace the existing fixtures and fittings with superior fixture and fittings, then it will be treated as a capital improvement.
