Rent a room relief – a new rule
Aug 07, 2018
In February we published an article about a consultation on rent a room relief. The government has become concerned that the original purpose of the relief has shifted considerably, so that rather than encouraging home owners to offer up their spare room to a lodger, it has been milked by those renting out their homes via Airbnb and other online property rental sites.
On 6 July 2018, the government published a policy paper entitled ‘Income Tax rent a room relief’, which outlines a new condition which tax payers must soon meet in order to be eligible for rent a room relief.
The original rules of rent a room relief
If you rent out a room in your house to a lodger, you are entitled to a tax-free limit of £7,500 a year. The accommodation you provide must be furnished, and it must be your only house or your main residence. It you let out a room as an office or for storage then the relief doesn’t apply, nor is it applicable if you let the space to a business.
The relief applies to services you provide to your lodger, as well as rent. So if you offer breakfast, cleaning or laundry services this will be included. Note that the relief applies to the gross rents you earn, not just the profits made, and if you exceed the £7,500 threshold you can expect to pay tax on the excess.
Currently rent a room relief is applicable if you rent out your whole house – whilst you’re away on holiday for example. You don’t have to be there at the same time as your tenant.
Changes from April 2019
Following the government’s consultation, a new ‘shared occupancy’ clause is being included in the rent a room rules to encourage longer term letting. This means that as the home owner you must be living in your property for at least some of the time that you’re renting it out – you won’t be eligible for the relief if you let out your house while you’re not there.
HMRC’s policy paper outlines a couple of examples of how the new shared occupancy test will be applied:
Example 1 – An individual lets their house (their main residence) during the Wimbledon tournament to a visiting family. The individual goes on holiday for the whole period of the rental. The receipts from the rental would not be eligible for rent a room relief as there is no shared occupancy during the period of the rental. Instead the receipts would be eligible for the new £1,000 property rental income allowance.
Example 2 – An individual rents a room in their main residence to a student during term time. The landlord goes on holiday for a week during the rental period. The receipts would be eligible for rent a room relief as there is shared occupancy for part of the period of the rental. The receipts would only be eligible for property rental income allowance if rent a room relief was not claimed.
This new condition will come into effect from April 2019. If you have any questions about whether you’re eligible for rent a room relief or how the rule change may affect you, please do get in touch.