When you will learn ACCA TX/ATX paper’s Property Income chapter you will come across one relief named Replacement relief or replacement of domestic item relief.
As the name suggest we can say that it will be benefit in case of replacement of any item at your property. But it’s not just that only, the concept and rules are more detailed. In this article we will see the step by step rules which will give you full clarity about the relief.
The Replacement of domestic item relief is available when we have an Residential property (which has been let out) with some furniture, appliances & kitchenware with that and in the current tax year we are replacing any of the item with the new one then the replacement cost is allowed as an deduction from total property income of that tax year.
The new item given must be used 100% by the lessee and capital allowance is not allowed to claim if we want to claim Replacement of domestic item relief.
The relief is not available to FHL property or any property in respect of which rent a room relief has been claimed.
The relief is available to Individual as well as Companies also for the expenditure incurred after 6th April, 2016 and 1st April, 2016 for companies. Before that date Individuals and companies were getting wear and tear allowance for furnished properties. (Just for your knowledge)
I hope you got my point and understood the basics of the relief that how and when it can come into the picture. Now let’s proceed further with detailed rules.
First of all we have to learn what kind of assets will be qualified for relief and list are as below,
- Moveable Furniture = Sofas, Tables etc.
- Furnishings = Curtains, carpets etc.
- Household appliances = Refrigerator, AC, Washing machine etc.
- Kitchen ware = Crockery, cutlery etc.
The above examples are just for your understanding and given to give an idea about what kind of assets can be included.
However, Fixtures are not part of Domestic items and do not qualify for replacement relief.
Fixtures are generally installed and attached to a house that it becomes part of house.
Example: Bathtub, Water heating system, boiler, fitted furniture (Built in cupboard or wardrobe)
If we replace any of the above qualifying items for residential property which has been let out then we can claim the replacement relief but now its time to decide the amount of the relief that will be available for deduction.
If New item is substantially of the same standard/quality as the old item:
Cost of New Item | XX |
Less : Proceeds of sale of old item | (XX) |
Add : Cost of disposing old item / Cost of Installing New item | XX |
Available deduction | XX |
If New item is NOT substantially of the same standard/quality as the old item:
Lesser of : 1) Cost of New Item OR 2) The cost that would have been incurred if the old item had essentially been replaced like-for-like. | XX |
Less : Proceeds of sale of old item | (XX) |
Add : Cost of disposing old item / Cost of Installing New item | XX |
Available deduction | XX |
The above amount will be considered as an Domestic Item replacement relief and will deductible from property income of the that tax year.
The above relief is can be important for your exam and for practical life also. I hope you are now confident and have got total understanding of the concept. For any further query you can contact career compass or our tutor Dipan Ghataliya.
By Dipan Ghataliya (ACCA) (UK Tax Tutor at Career compass)
All the best from Career Compass.
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