Rent-a-room changes


Rent-a-room re­lief was in­tro­duced in 1992 to pro­vide an in­cen­tive for peo­ple to rent out spare rooms in their homes. The aim was to free up more low-cost rental ac­com­mo­da­tion and en­able work­ers to move around the coun­try without in­cur­ring ho­tel bills for medium to long term stays.

Since its in­tro­duc­tion, there have been sig­nif­i­cant changes to the hous­ing mar­ket, in­clud­ing the growth of plat­forms such as Airbnb which has made let­ting a lot eas­ier.

In the Spring Bud­get of 2017, the gov­ern­ment an­nounced that it would be re­view­ing rent-aroom re­lief to as­cer­tain whether it con­tin­ued to pro­vide the right in­cen­tives to en­cour­age longert­erm let­tings. A call for ev­i­dence was an­nounced to de­ter­mine whether the re­lief was be­ing used pri­mar­ily for res­i­den­tial pur­poses or as hol­i­day/guest ac­com­mo­da­tion.

Views were sought as to whether re­lief should be re­stricted to those let­ting for res­i­den­tial pur­poses and whether re­lief should be re­stricted only to lets ex­ceed­ing 30 days. The na­ture of the cur­rent re­lief is such that an in­di­vid­ual can earn up to £7,500 tax-free per an­num, from let­ting fur­nished ac­com­mo­da­tion in their main or only res­i­dence and it is not a re­quire­ment that the in­di­vid­ual let­ting owns the prop­erty. The re­lief is also avail­able to those

run­ning ‘bed-and-breakfasts’ or a ‘guest house’. When more than one per­son ben­e­fits, the tax-free limit is halved to a min­i­mum of £3,750 (so four peo­ple ben­e­fit­ing still get £3,750 each).

If the rental in­come re­ceived ex­ceeds the re­spec­tive thresh­old, the tax­payer has two choices: ei­ther to com­pute prof­its in the nor­mal way or to be taxed only on the rental in­come re­ceived in ex­cess of the limit. For ex­am­ple, Jack lets out two rooms to lodgers in 2018/2019 re­ceiv­ing £10,000, in­cur­ring £2,000 in ex­penses. If he claims rent-a-room re­lief he is taxed only on £2,500, yet if he uses the usual method he is taxed £8,000, so in this case clearly renta-room re­lief is best in Jack’s case.

Since April 6, 2019, there were changes to rent-a-room re­lief which will be ap­plied via the new ‘shared oc­cu­pancy test’. The sig­nif­i­cance of this new test is that the tax­payer (or a mem­ber of his/her fam­ily or house­hold) must be liv­ing in the res­i­dence and phys­i­cally present for at least some part of the rental pe­riod to qual­ify for the re­lief. No min­i­mum pe­riod of ‘over­lap’ has been spec­i­fied in the draft leg­is­la­tion so it seems one night in the same house with your lodger/ten­ant is enough!

Clearly the above changes will be OK in the case of long term lodgers but may prove very dif­fi­cult to man­age in the case of week­end/weekly lets, such as in the case of ‘Airbnbtype’ ar­range­ments. The re­sult may bring per­sons who would other­wise have en­joyed the gen­er­ous rent-a-room tax free limit into a tax­able sit­u­a­tion... not all is lost, though, as they still have the £1,000 tax-free prop­erty al­lowance to en­joy.

ABOVE: Plat­forms like Airbnb make it eas­ier to rent out a room in your home Getty/Li­ud­myla Supyn­ska

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