Wear and Tear Allowance is a 12.5% tax deduction for furnished rental property landlords in Ireland, allowing them to offset furniture depreciation costs against rental income tax through annual claims on their tax returns.
Wear and Tear Allowance is a specific tax deduction available to Irish landlords who let out furnished residential properties, allowing them to claim 12.5% of the annual rent received as an expense against their rental income. This allowance recognises that furniture, appliances, and household equipment gradually lose value through normal use over time, providing landlords with legitimate tax relief for this inevitable depreciation.
This tax provision operates under Case V of Schedule D, covering rental income from property. Unlike capital allowances which apply to the actual cost of assets, Wear and Tear Allowance is calculated as a percentage of the rent itself, making it simpler to administer for landlords with multiple properties or varying asset values. The allowance can significantly reduce your taxable rental profits, thereby lowering your overall income tax liability.
For startup founders who invest in property or manage company-owned accommodation, understanding Wear and Tear Allowance is crucial for maximising legitimate tax relief whilst maintaining full tax compliance. Properly claiming this allowance requires accurate record-keeping and understanding which properties qualify, ensuring you don't miss out on valuable deductions or face Revenue adjustments during compliance checks.
In practice, Wear and Tear Allowance allows you to deduct 12.5% of the gross annual rent you receive from furnished residential properties when calculating your taxable rental income. This deduction is claimed annually on your Form 11 tax return or within your company's CT1 Return if the property is held through a limited company.
The calculation is straightforward: if your property generates €20,000 in annual rent, you can claim €2,500 (12.5%) as Wear and Tear Allowance. This reduces your taxable rental income to €17,500 before considering other allowable expenses like repairs, insurance, or mortgage interest. The allowance applies for each year the property is let, regardless of whether you actually replace any furniture during that period.
It is important to note that Wear and Tear Allowance is distinct from repairs and maintenance costs, which are claimed separately as they occur. The allowance covers the general depreciation of furnishings, whilst repairs address specific damage or wear issues that need immediate attention.
Revenue defines a furnished property as one that contains sufficient furniture, appliances, and household equipment for normal residential use. This typically includes essential items like beds, wardrobes, sofas, dining tables, chairs, refrigerators, cookers, washing machines, and basic kitchen utensils.
The property must be let with all these items included; unfurnished or part-furnished properties do not qualify. If you provide only white goods without basic furniture, or vice versa, you cannot claim the full Wear and Tear Allowance. The key test is whether a tenant could reasonably live in the property without needing to provide their own essential furnishings.
For holiday lets or short-term rentals, the same principles apply but with additional considerations for furnishings quality and replacement frequency. Properties let on a room-by-room basis within a house may also qualify if each room is adequately furnished for independent living.
Wear and Tear Allowance and capital allowances serve similar purposes but operate under different rules. Wear and Tear Allowance applies specifically to furnished residential lettings and is calculated as 12.5% of the annual rent, regardless of the actual cost or value of the furnishings.
Capital allowances, by contrast, apply to the actual cost of qualifying assets used in a trade or business, including commercial properties, and are calculated as a percentage of the asset's cost on a reducing balance basis. Whilst both provide tax relief for asset depreciation, Wear and Tear Allowance offers simpler administration for residential landlords who may not wish to track individual furniture costs over many years.
No, Wear and Tear Allowance applies only to furnished residential properties. Commercial properties, including offices, retail units, and industrial spaces, must use the capital allowances system for claiming depreciation on fixtures, fittings, and equipment.
If you own a mixed-use property with both residential and commercial elements, you need to apportion the rent between residential and commercial portions. Only the residential portion qualifies for Wear and Tear Allowance, whilst the commercial portion requires capital allowances claims on appropriate assets.
To support your Wear and Tear Allowance claim, maintain detailed records including tenancy agreements showing the property is let furnished, rent receipts or bank statements confirming rental income, and an inventory of furnishings provided at the start of the tenancy.
Whilst Revenue does not require annual inventories, having photographic evidence of furnishings can help during compliance checks. Keep these records for six years from the end of the tax year in which you make the claim, as Revenue can review past returns within this period and may disallow claims without proper documentation.
Yes, several restrictions apply. The property must be located in Ireland or the UK (under specific cross-border provisions), and it must be let on a genuine commercial basis rather than to family members at reduced rates. Properties that are your own principal private residence or occupied rent-free do not qualify.
If you claim Rental Income Tax losses through Wear and Tear Allowance, these losses can only be carried forward against future rental profits from the same property, not offset against other income sources. Additionally, if you sell the property, any unclaimed allowance cannot be carried over to the new owner.
When you actually replace furnishings during the tenancy, you cannot "double dip" by claiming both Wear and Tear Allowance and the full cost of replacements. Instead, you must deduct any proceeds from selling old items and adjust your Wear and Tear Allowance claim accordingly.
For significant refurbishments where you replace multiple items, you may need to recalculate the allowance or consider switching to the capital allowances system if it provides better tax relief. Professional advice is recommended for complex situations to ensure optimal tax relief whilst maintaining compliance.
Incorrect claims can trigger Revenue compliance interventions, resulting in tax assessments for underpaid Rental Income Tax, plus tax interest and potential penalties. The severity depends on whether the error was careless or deliberate, with penalties ranging from 3% to 100% of the additional tax due.
If you discover an error in a previous claim, you should voluntarily disclose it to Revenue through the Code of Practice for Revenue Audit framework, which may reduce penalties. Maintaining accurate records and seeking professional advice helps prevent errors and ensures your Wear and Tear Allowance claims withstand Revenue scrutiny.
