Rent a Room relief provides up to £7,500 tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property. It was originally aimed at encouraging people to take in lodgers but has since been used by those letting to holidaymakers and Airbnb guests.
The government proposed scrapping or substantially amending the relief in a public consultation but recently announced that it will be retained at its current level. Before you jump for joy, there is a new proposal.
The government has suggested a new “shared occupancy test”. This means that relief can only be claimed when the landlord is present at the property during the rental period.
AAT - the Association of Accounting Technicians - believes that the new test will add unnecessary complexity to the tax system and has other shortfalls, particularly around how shared occupancy can be proved.
The shared occupancy test will effectively bring an end to rent-a-room relief for those renting their whole properties out or who rent out a single room while they are away. These “landlords” will have to rely on the much lower £1,000 property allowance instead.
The government policy paper states: “This ‘shared occupancy’ test will provide that the individual, or a member of their household, in receipt of income, must have a ‘shared occupancy’, a physical presence for all or part of the period of the rental, with the individual whose occupation of the furnished accommodation is generating receipts. Those taxpayers that do not satisfy this test will no longer be eligible to claim rent a room relief on those receipts.”
Phil Hall, AAT Head of Public Affairs and Public Policy, says: “This will add unnecessary complexity to the tax system. Many will be forced to complete a self-assessment tax return when they otherwise wouldn’t and many more will be required to laboriously keep records of when they were and weren’t at home.
“It’s also likely to reduce accommodation availability and choice because many ‘landlords’ will simply choose not to rent out their spare rooms when they are not present. Rent-a-room relief is one of the few ways in which people can supplement their annual earnings in a relatively simple and tax efficient manner but this new test will change that.”
Although the legislation is due to come into force in April 2019, it remains unclear as to whether or not HMRC will require taxpayers to prove their shared occupancy or if they are simply relying on taxpayers honesty.
Phil Hall adds: “If no proof is required then the scheme will be open to widespread abuse. If proof is required, it’s difficult to see exactly how shared occupancy can be proven in practice, especially when this may relate to irregular nights here and there. Enforcement will be a nightmare and I’m not sure HMRC have properly thought that through.
“A shared occupancy test is a headache being created for what the Treasury’s own analysis states will be a ‘negligible’ impact on tax receipts. The best solution would be to drop these plans and allow rent-a-room relief to continue as it has for over 25 years as a simple to administer, easy to understand tax relief that’s available to all.”
To make your views known about this proposed new “shared occupancy test”, contact email@example.com before August 31st 2018.