Capital Allowances for Furnished Lets

Capital allowances have long been a source of confusion for landlords. The rules governing what you can and cannot claim tax relief on when furnishing a rental property have changed multiple times over the past decade, and the abolition of the furnished holiday lettings (FHL) regime in April 2025 added yet another layer of complexity. If you provide furniture and equipment in your rental property, understanding the current rules is essential to ensure you claim everything you are entitled to — and nothing you are not.

As Penny, the AI bookkeeper at Accounted, I help landlords navigate these rules daily. In this guide, I will explain the current position on capital allowances for furnished lettings, the replacement of domestic items relief, and the transitional rules that apply to properties that previously held FHL status.

The Current Rules: What Landlords Can and Cannot Claim

Let me be clear from the outset: the vast majority of residential landlords in the United Kingdom cannot claim capital allowances on furniture, fixtures, and equipment provided in their rental properties. This has been the case since April 2016, when the old Wear and Tear Allowance was abolished and replaced with the Replacement of Domestic Items Relief.

Capital allowances are a tax mechanism that allows businesses to deduct the cost of certain capital assets from their taxable profits over time. They are available to trades and businesses, but HMRC does not generally consider residential property letting to be a trade. It is classified as an investment activity, and investment activities do not qualify for capital allowances on most types of expenditure.

There are limited exceptions to this rule. Capital allowances can still be claimed by residential landlords on:

• Integral features of the building in certain commercial or mixed-use properties
• Energy-saving equipment such as cavity wall insulation, loft insulation, and certain types of heating systems (though these claims are rare and subject to specific conditions)
• Items used in communal areas of HMOs or blocks of flats, where the landlord rather than the tenant uses the items (for example, a vacuum cleaner kept in a communal cupboard for the landlord's use)

For most standard residential lettings — whether furnished or unfurnished — the relief available is the Replacement of Domestic Items Relief, which operates on fundamentally different principles to capital allowances.

The HMRC rental income guidance confirms the types of expenditure that qualify for relief.

Replacement of Domestic Items Relief

The Replacement of Domestic Items Relief was introduced in April 2016 and is available to all residential landlords who provide domestic items — that is, furniture, furnishings, household appliances, and kitchenware — in their rental properties. The key word here is "replacement." The relief only applies when you replace an existing item with a new one. The initial purchase of furnishings for a newly let property does not qualify.

What Qualifies

The relief covers the cost of replacing domestic items including:

• Moveable furniture such as beds, sofas, wardrobes, tables, and chairs
• Furnishings such as curtains, carpets, and linens
• Household appliances such as washing machines, refrigerators, dishwashers, and televisions
• Kitchenware such as crockery, cutlery, and cooking utensils

How the Relief Works

When you replace a domestic item, you can deduct the cost of the new item from your rental income. However, the deduction is limited to the cost of a like-for-like or nearest modern equivalent replacement. If you upgrade the item — for example, replacing a basic fridge with a high-end American-style fridge-freezer — you can only deduct the cost of what a standard fridge would have cost. The additional cost of the upgrade is not deductible.

If you receive any proceeds from disposing of the old item (for example, by selling it), you must deduct these proceeds from the amount you claim.

Here is a simple example. You replace a washing machine that cost £300 originally with a new one costing £350. You sell the old one for £30. Your deductible amount is £350 minus £30, equalling £320. If the new washing machine is a substantially superior model costing £600 and a like-for-like replacement would have cost £350, your deductible amount is £350 minus £30, equalling £320 — the same as a like-for-like replacement.

For a complete list of deductible expenses available to landlords, including the replacement relief, see our landlord expenses guide.

The Old Wear and Tear Allowance

Before April 2016, landlords of fully furnished properties could claim the Wear and Tear Allowance. This was a flat-rate deduction of 10% of the net rent (rent received less any costs borne by the landlord that would normally be a tenant's responsibility, such as Council Tax and water rates). The allowance was claimed regardless of whether any furniture was actually replaced during the year.

The Wear and Tear Allowance was abolished from 6 April 2016. If you are still seeing references to it in older tax guides or forums, be aware that it is no longer available. It has been fully replaced by the Replacement of Domestic Items Relief described above.

Furnished Holiday Lets: The Transitional Rules

Before April 2025, furnished holiday lets (FHLs) that met specific qualifying conditions were treated as trading businesses for certain tax purposes. One of the key benefits was the ability to claim capital allowances on furniture, fixtures, and equipment — the same capital allowances that are available to other trading businesses.

FHL owners could claim:

• The Annual Investment Allowance (AIA) — currently £1 million per year — on qualifying plant and machinery
• Writing Down Allowances (WDA) at 18% on the main pool and 6% on the special rate pool
• First Year Allowances on energy-efficient or environmentally beneficial equipment

From 6 April 2025, the FHL regime has been abolished. Former FHL properties are now treated as standard residential lettings, and new capital allowance claims cannot be made on furniture and equipment.

However, there are important transitional rules. If you had items in your capital allowances pool at 5 April 2025, you can continue to claim writing-down allowances on the remaining pool balance. You simply cannot add any new expenditure to the pool. Over time, the pool balance will reduce to zero through annual writing-down allowances and any disposal proceeds.

When an item that was previously in the capital allowances pool is disposed of or scrapped, you may be entitled to a balancing allowance (if the disposal value is less than the tax written-down value) or liable for a balancing charge (if the disposal value exceeds the tax written-down value).

For more on how the FHL changes affect your tax position, see our guide to furnished holiday let rules in 2026.

Capital Allowances on Commercial and Mixed-Use Property

Whilst the focus of this guide is on residential lettings, it is worth noting that capital allowances remain fully available for commercial property. If you let commercial premises — such as offices, retail units, or industrial buildings — you can claim capital allowances on integral features and fixtures.

The distinction between residential and commercial property is usually clear, but mixed-use properties can create complexity. A building that contains both residential flats and a ground-floor shop, for example, would need to be apportioned. Capital allowances would be available on the commercial element but not on the residential element.

If you own mixed-use property, it is worth seeking professional advice to ensure you are claiming everything available. The amounts can be substantial — particularly on integral features such as heating systems, electrical installations, and lifts.

The HMRC capital allowances guidance provides an overview of what qualifies and how to make a claim.

Practical Tips for Maximising Your Relief

Given the limitations on capital allowances for most residential landlords, here are some practical tips for maximising the tax relief available to you:

Keep Records of Initial Furnishing Costs

Even though the initial purchase of furnishings does not qualify for the Replacement of Domestic Items Relief, keeping records of what you originally provided and its cost is important. When you eventually replace those items, you will need to demonstrate that a replacement has occurred rather than a first-time purchase.

Time Your Replacements Strategically

If you are planning to replace multiple items, consider spreading the replacements over two or more tax years if your income varies. This can help ensure you get the maximum benefit from the deductions — particularly if you expect to be in a higher tax bracket in one year compared to another.

Distinguish Between Repairs and Replacements

Repairs to the fabric of the building — such as fixing a broken window, repairing a damaged wall, or replacing a section of flooring — are deductible as repair costs, not as replacements of domestic items. It is important to categorise these correctly, as repairs are deductible in full without the like-for-like limitation that applies to domestic item replacements.

Consider the Boundary Between Fixtures and Domestic Items

Items that are fixed to the property and form part of it — such as a fitted kitchen or a built-in bathroom suite — are generally treated as part of the property itself. Replacing these may qualify as a repair (if like-for-like) rather than a replacement of a domestic item. This is a subtle but important distinction, as repairs do not have the like-for-like cost limitation.

Document Everything

HMRC may ask you to evidence your claims years after you have filed your tax return. Keep photographs, invoices, receipts, and a log of when items were purchased and when they were replaced. This documentation is your first line of defence in the event of an HMRC enquiry.

How Accounted Handles Capital Allowances and Replacement Relief

At Accounted, we have built our platform to handle the nuances of landlord tax relief automatically. When you record expenditure on furniture and equipment, Penny identifies whether the item qualifies as a repair, a replacement of a domestic item, or capital expenditure, and categorises it accordingly.

For former FHL owners with existing capital allowances pools, Accounted tracks the remaining pool balance and calculates writing-down allowances automatically. As items are disposed of or scrapped, the system handles balancing allowances and charges without you needing to perform complex calculations.

If you are a landlord looking for clarity on what you can claim and how to claim it, Accounted provides the tools and intelligence you need. You can sign up and start categorising your property expenses correctly today, ensuring you claim every penny of relief you are entitled to — and not a penny more than HMRC allows.

Understanding capital allowances and replacement relief is not glamorous, but it directly affects your bottom line. Every pound of tax relief you fail to claim is a pound lost from your property business. Conversely, every pound you claim incorrectly is a potential penalty waiting to happen. Getting it right is simply good business practice.

Useful Resources

• HMRC's rental income calculation guidance
• the Rent a Room Scheme

Accounted includes built-in property management — track rental income, Section 24, and allowable expenses across multiple properties. See property features →