Is this definitively correct? I'm not so sure. Depreciation is a business accounting concept that has little relevance for privately-owned consumer goods.
I would argue that the appropriate starting cost should be, not the depreciated cost, but a fair valuation of the contents items at the date of first letting.
Take the example of a damaged badly piece of furniture that happens to be a year old. It would be a nonsense to assume that it has retained 87.5% of its original value.
Wear & tear allowances under S.284 are only ever granted on the basis of the actual cost of the asset in question - S.284(2)(ad)
"Where capital expenditure is incurred on or after 4 December 2002 on the provision of machinery or plant a wear and tear allowance for a chargeable period will be of an amount equal to 12.5 per cent of the actual cost of the machinery or plant"
I think we had a thread on here before about the allowability or otherwise of capital allowances on fixtures & fittings in houses that were originally PPRs and subsequently become rental properties. S.284(6) & (7) state
"Wear and tear allowances are also available in respect of capital expenditure incurred on fixtures and fittings (for example, furniture, kitchen appliances, etc) provided by a lessor for the purposes of furnishing rented residential accommodation. The allowances are available only where the expenditure is incurred wholly and exclusively in respect of a house used solely as a dwelling which is, or is to be, let as a furnished house on bona fide commercial terms in the open market."
A strict interpretation of this would suggest that no wear & tear may be due, but Revenue policy would appear to be that it is only equitable to allow wear & tear.
S.287 sets out provisions for wear & tear allowances to be deemed to have been made. It states inter alia;
"The normal wear and tear allowance for a chargeable period is to be calculated on the basis that —
• the trade had been carried on by the person concerned ever since that person acquired the machinery or plant in such circumstances that the full amount of the profits or gains of the trade were chargeable to tax,
• since its acquisition by the person concerned the machinery or plant had been used by that person solely for the purposes of the trade,
• a proper claim had been made by the person for a wear and tear allowance in respectof the machinery or plant for every relevant chargeable period,"
The meaning of all of which is that in the case of a PPR becoming a rental property, if any wear & tear is to be allowed it should be calculated on the basis that 12.5% the original cost p.a. has already been claimed for the prior years of ownership. So in the case of an asset that was 3 years old at time of first letting, it will be introduced at its original cost, already written down by 37.5%, with 62.5% remaining to be written off over the remaining 5 years.
(All of the quotes above are taken from Revenue's Notes for Guidance ([broken link removed]), as they read more easily than the actual legislation itself.)