Replacement of domestic items relief: Tips and traps

Meg Saksida goes back to basics and explains this important relief for residential property landlords. 

It does not matter whether a landlord is using the cash basis or the accruals basis; the initial purchase of domestic items and furnishings in a residential property is not available to be offset against the landlord’s rental income for tax purposes. This is confusing for many landlords, who can sometimes incorrectly assume that all purchases used ‘wholly and exclusively’ for the property are tax-deductible.  

However, when the white goods, furnishings or other domestic items are replaced, it is a different story, and a tax deduction is possible. For residential landlords, this is available through the replacement of domestic items relief (RODIR), which is found in the tax legislation from ITTOIA 2005, s 311.  

Relief conditions 

The legislation includes four conditions that must be satisfied to offset the purchase. These are:  

• firstly, there is a property business being carried on;  
• secondly, it is a replacement of a domestic item rather than either an initial purchase or an additional item;  
• thirdly, the item being purchased is being wholly and exclusively used in the letting business; and 
• finally, no capital allowances have been claimed in respect of the item. 

What are domestic items? 

Domestic items are moveable items that are used inside a residential property by the tenants. HMRC gives a non-exhaustive list of four categories which they deem examples of domestic items: 

1. Moveable furniture (sofas, tables, bed frames, etc.). 
2. Furnishings (curtains, rugs, carpets, etc.). 
3. Household appliances (fridges, freezers, washing machines, etc.). 

4. Kitchenware (utensils, crockery, cutlery, etc.). 

If the item is fixed or installed into the property, it will not count as a domestic item, so items such as boilers, lifts, radiators, baths/basins/WCs and built-in wardrobes and cupboards will not be domestic items. The replacement of these items may, however, be covered by ‘repairs’ to the property, but only if a part is repaired or replaced, and not if replaced entirely. 

Bear traps to avoid 

The standard and quality of the replacement item need to be approximately the same as the original item. Any improvements to the item will not, therefore, be a ‘replacement’ but will form part of an additional asset and therefore will not be able to fully benefit from the RODIR.  

For example, a family-sized fridge, with several shelves, an icebox and a vegetable drawer which had cost £400 eight years ago, is replaced by a similar model costing £600; despite the price increase, because the features of the two items are essentially the same, this would not be seen as an improvement but a replacement. The whole £600 would, therefore, be eligible for relief.  

However, if the original fridge was replaced with a double-sided American style fridge with an external mineral water and ice dispenser costing £1,000, the new item would not be substantially the same quality as the old item, and so the tax relief would be limited. The relief is limited to either the cost of the new item or the cost of the old item updated for today’s price, whichever is lower. In this case, the relief would be limited to £600, being the current cost of the ‘like for like’ family fridge. The extra £400 paid for the improved features of the American fridge would not be able to be offset. 

Incidental expenditure on the item replaced is also available for deduction (e.g., the cost of delivering and or installing the new asset, or the cost of taking away the old asset). In addition, if there are proceeds received from the sale or disposal of the old asset, these proceeds should be deducted from the expenditure getting relief.  

For example, if an old sofa is replaced with a like-for-like new one costing £1,000, but rather than being thrown away the old sofa is sold for £200, the maximum offset for tax purposes for the new sofa is £800. If the old item is part-exchanged, the reduced price for the new item after allowing for the trade-in is the amount available for the relief. 

Exceptions 

There are, as always, exceptions to the relief. The first is furnished holiday lettings. These properties sit under their own tax regime and cannot use the RODIR. If the landlord is using rent-a-room relief, the RODIR is also not available. 

There is no relief if there is any private use of the item. For example, if the landlord lets the property only for a part of the year and for some of the year they use the property privately, RODIR will not be available. Likewise, if the landlord is in occupation with the tenant and also uses the item. 

Example: What can be claimed? 

Amanda has a house in North London that she rents to Taylor, a very reliable tenant who always pays his rent on time (one month in advance, on the first of the month). Taylor has let the property for five years, paying rent of £1,500 a month. The rent increased from 1 November 2020 to £1,800 a month.  

Amanda had the following expenses in the tax year 2020/21:  

*The same bed and mattress were purchased from the same shop as the old one. 

** The TV was a flat-screen 40’ model that is now retailing at £700. It was replaced with an OLED 65’ ultra HD 4k smart TV costing £1,700.  

***There was already one armchair in the living room, but Amanda bought a second 

What was Amanda’s property income for 2020-21? 

Because Amanda has property income under £150,000, she is eligible to use the cash basis of calculating profits rather than the accruals basis. Her rents received in the tax year 2020/21 will therefore be those at £1,500 from 1 May to 1 October (i.e., 6 months) and £1,800 from 1 November to 1 April (i.e., 6 months). 

The painting of the laundry room would be deductible as a repair to the property. The new bed would be deductible under RODIR as a similar standard bed was purchased. The relief for the replacement TV, however, would be limited to the new replacement cost of the original TV (i.e. £700). The substantially improved new TV cost of £1,700 would not be available for offset. The new sofa and the extra armchair are unable to be offset, as neither of these are replacements but are purchases of new domestic items. This property income profit of £16,700 will need to be added to Amanda’s non-savings income and taxed in her self-assessment return for 2020/21. 

Practical tip 

When using replacement of domestic items relief, ensure that the replacement items are substantially the same standard and quality as the old items; otherwise, full relief for the new item will not be available.