Derek Picot analyses UK taxbreak rules for private lettings

How will the new tax-break rules for private lettings affect landlords and Airbnb enthusiasts?

The talk among residents of Wimbledon this year during the Tennis Championships was not about the possibility of another Federer/Nadal final. It was all about Her Majesty’s Revenue and Customs (HMRC) inspectors, who have begun a crackdown on tax-free earnings from letting out private accommodation to the players and anyone else involved with the two-week extravaganza. SW19 has been awash with homeowners selling everything from rooms, parking on the drive and barbecued food on the lawn.

The HMRC action will be welcome news indeed to London hoteliers. Many have been fighting a rearguard action against private lettings sites like Airbnb, who they consider a significant interloper into their sector. The hotel industry’s trade representative, the British Hospitality Association (BHA) objects strongly to those they call “intermediaries”, who let their homes without paying appropriate taxes or ensuring that accommodation is safe for travellers both in terms of security and food hygiene. It considers that there is a huge sub economy at play and certainly at Wimbledon this year house rentals soared to over £10,000 for a two-week let.

With the current tax legislation, homeowners can earn up to £7,500 a year tax-free by renting out a room to a lodger or offering their whole home for shortterm stays, under the “rent a room” relief. Following lobbying in Parliament and with the London Council, the BHA has successfully managed to get Airbnb to start acting more responsibly by blocking hosts from renting entire homes for more than 90 days a year unless they have a licence to do so. However, this new imposition has not satisfied the tax inspectors. Under new rules to clarify the relief from April 2019, in time for next year’s Championship, homeowners will only get a tax break if rentals are part of a home and not the whole house. In addition to that, the owner must be present for at least part of the let.

OCCUPANCY CLAUSE

The interpretation makes it clear that renting a whole house breaks the spirit of the existing rules, which are intended to help the less well-off with additional income from letting out a room to a lodger. To underline the point HMRC has added a new “occupancy clause”, which limits the use of relief to spare rooms in hostoccupied properties only.

Hoteliers were delighted that, finally, home-sharing platforms, such as Airbnb, were being obliged to assume a duty of care to their guests and conform to the law. However, the current situation is still not an even playing field. Travellers are reasonably clear as to what they will receive in value when they book a hotel. They can expect clean sheets, a fire-safe building and inspected kitchens. With rented private accommodation there can be a number of surprises. Customers might be asked to bring their own linen or make provision for cleaning any linen they use. Even gaining access can be a challenge. Flight delays have left some guests on the doorstep after midnight with no key and, where landlords are not in occupancy, access can involve visiting other addresses to get the accommodation unlocked. Dubai introduced a regulation in 2013 (Decree No. 41) relating to the leasing of holiday homes but many cities are not regulated, and it is a case of caveat emptor.

While all this has been troubling for Wimbledon homeowners, some comfort for them and hoteliers alike can be taken from the generosity of the All England Club’s prize fund, which this year had a 7.6 per cent increase to £34 million.

Although the Champions will take home £2.25 million each, even losers in the first round will receive £39,000 and they all get £200 a day followed up with a food allowance at the players’ restaurant for as long as they are in the tournament.

This is good news for my wife, who last year took in two doubles’ players in our upstairs bedrooms for a reasonably low rent. She does it all “for the love of the game”, of course, and the breakfast she served ( pun intended) increased in lavishness as the competitors progressed through the rounds, consequently diminishing the profit from the meagre rate she was charging. But now she knows that the players will be given an allowance of £400 a day between them, I’m sure that, next year, there will be a significant hike in the rent.

As long as it abides by the new tax rules, of course.

Renting a whole house breaks the spirit of the existing rules, which are intended to help the less well-off