Furnished vs Unfurnished Lettings: Tax and Practical Differences

For tax, furnished vs unfurnished mainly changes how you claim for furniture and appliances, not your headline Income Tax rate. The real decision is whether the extra rent covers the extra cost, hassle, and risk over a few years.

"This guide provides general information about UK landlord tax obligations. It is not financial or legal advice. Tax treatment depends on your individual circumstances and may change. Consider consulting a qualified accountant or solicitor for advice specific to your situation."

1. Where we are now: no more 10% wear and tear

Old regime (pre-6 April 2016)

• Wear and tear allowance: if a property was fully furnished, you could deduct 10% of net rent every year whether or not you replaced anything.
• Unfurnished landlords got nothing for furniture other than some integrated fixtures.

Current regime (from Finance Act 2016, in ITTOIA 2005 s311A)

• 10% allowance abolished from April 2016.
• Replaced by "replacement of domestic items" relief which is available to all residential landlords (furnished or unfurnished) when they replace qualifying items.

So in 2025-26, you are not choosing tax regimes based on furnished vs unfurnished. You are deciding how far you want to go down the fully-kitted-out route for a modest rent premium.

2. Replacement domestic items relief: what you actually get

Legal basis and conditions

ITTOIA 2005 s311A and HMRC PIM3210 set out "replacement of domestic items" relief.

Applies where:

• You run a property business including a dwelling.
• A domestic item provided for tenant use is replaced with another domestic item.
• New item is solely for tenant use, and old item is no longer available.

What you can claim

Relief is for the cost of the replacement, not the initial purchase, calculated as:

• Cost of the new item
• Plus delivery, installation, disposal costs
• Minus any money you get for the old item

Qualifying domestic items include:

• Moveable furniture: beds, sofas, tables, wardrobes.
• Soft furnishings: carpets, rugs, curtains, blinds, linen.
• Household appliances: fridge, freezer, washing machine, TV, microwave.
• Kitchenware: crockery, cutlery, pots, pans.

What does not qualify:

• Initial furnishing when you first kit out a property -- that is capital, not deductible via this relief (though it can go into CGT base cost later).
• Fixtures that are part of the building: built-in kitchens, baths, boilers, radiators, wiring, central heating -- these are repairs/capital under normal rules, not domestic items.

Furnished Holiday Lettings used to get capital allowances, but with the FHL regime abolished from 6 April 2025, landlords now rely on replacement domestic items relief instead for furniture.

3. Practical and financial differences: furnished vs unfurnished

Tax position (for standard ASTs)

Furnished vs unfurnished does not change your rental profit calculation except for timing of replacement claims. Both can use replacement domestic items relief when they replace furniture they provide.

Rent and yield

• Furnished properties typically command 5-15% higher rent than comparable unfurnished units, with higher percentages in student and corporate markets.
• That premium is highly local: in some areas tenants expect unfurnished and will not pay much extra for furniture.

Insurance and risk

Furnished:

• You need landlord contents cover for your items, and you face more damage and wear on sofas, beds, white goods.
• Premiums and excesses are usually higher.

Unfurnished:

• You focus on buildings and maybe minimal fixtures, with lower contents exposure.

Operational issues

Furnished:

• More depreciation and replacement admin (tracking what you bought when).
• Storage headaches between tenancies if tenants want to use some of their own items.
• Often attracts tenants expecting shorter stays (students, young professionals, relocations).

Unfurnished:

• Tenants bring their own furniture and may stay longer, reducing voids.
• Less to maintain apart from fixtures, and move-in/move-out inspections are simpler.

In short, furnished is a cashflow and tenant-profile decision rather than a tax decision now.

4. Five-year worked example: furnished vs unfurnished

Assume a typical 2-bed in a city:

• Unfurnished market rent: GBP 1,000/month.
• Furnished market rent: 10% premium = GBP 1,100/month.
• Ignore mortgage and other running costs (same in both scenarios) and focus on furniture economics and tax.

Scenario A -- Unfurnished

• Annual rent: 1,000 x 12 = GBP 12,000.
• You provide only fixtures (kitchen, bathroom, boiler) -- no replacement domestic items claims.
• After 5 years:
• Gross rent over 5 years: GBP 60,000.
• No furniture spend, no replacement relief.

Scenario B -- Furnished

Assume:

• Initial furniture pack (beds, sofas, dining set, white goods, basic kitchenware): GBP 5,000 (capital, no immediate deduction).
• You then replace items over 5 years:
• Year 3: replace sofa and mattress -- GBP 1,200, fully claimable under replacement relief.
• Year 5: replace washing machine -- GBP 450, fully claimable.

Rent:

• Annual rent: 1,100 x 12 = GBP 13,200.
• Over 5 years: GBP 66,000.

Tax-deductible replacement spend:

• Year 3: GBP 1,200.
• Year 5: GBP 450.
• Total deductible via replacement relief: GBP 1,650.

Comparison over 5 years

• Extra rent from furnishing: 66,000 - 60,000 = GBP 6,000.
• Tax-deductible replacement costs: GBP 1,650.
• Non-deductible initial furniture spend: GBP 5,000 (only helps CGT later).
• Ignoring CGT, you are effectively GBP 1,000 better off before tax over 5 years (6,000 extra rent - 5,000 initial furniture), plus you got 1,650 of tax-deductible replacements along the way.

Whether that is worth it depends on:

• Damage rates and unexpected extra replacements.
• How often you need to re-furnish to keep rent at a premium.
• Longer voids or worse tenants if you choose the wrong furnishing level for your market.

If the rent premium is closer to 5%, the numbers usually do not justify a full furniture pack unless you were going to kit it out anyway.

5. What forums get wrong about furnished lets and tax

Common myths:

"Furnished is better for tax because you get the 10% wear and tear." That ended in April 2016. Everyone now uses replacement domestic items relief on actual spend; furnished has no built-in tax edge anymore.

"I can claim for the initial furnishing of the property." No: s311A only covers replacements where there was an old item for tenant use. Initial furnishing is capital and not deductible against rent, though you can include it in CGT base cost when you sell.

"Carpets and white goods are building fixtures so I can claim them as repairs." HMRC treat carpets and most white goods in resi lets as domestic items: replacement relief only, no deduction on first purchase. Built-in items that are part of the building (like a hard-floor covering fixed down, integrated oven) follow repair vs capital rules instead.

"Replacement relief only applies to fully furnished properties." It applies to any dwelling where you provide domestic items, including part-furnished or mainly unfurnished properties.

The right question is not "Which is better for tax?" but "In my area, with my tenant type, does the extra rent over 3-5 years comfortably beat the real, non-deductible cost and hassle of furniture?"

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