HMRC have been looking at the rules around rent a room relief and whether the rules around the relief should be changed.
What is Rent a Room Relief?
Rent-a-room relief provides that the rent received by an individual from a lodger from their main residence can be exempt from income tax (currently up to £7,500).
Why are HMRC considering changing the rules?
HMRC are concerned that the idea behind the rent a room relief, to increase the amount of rooms available to rent, is not being used as was initially intended. The relief was introduced in 1992 but over recent years online apps and social media have made it easier for landlords to let out rooms for short periods.
In a policy paper released 6 July, HMRC proposed a change to the legislation in the form of an additional test that must be satisfied in order for income to be eligible for rent-a-room relief. The test requires the individual or individuals in receipt of rental income to have “shared occupancy” of the residence in question for all, or part, of the period of occupation which gives rise to the receipts.
Who will the changes affect?
The proposed change will affect rentals where the owner does not intend to actually be present in the property at the same time as the lodger. So for instance where there was a major event taking place near the property – for instance a festival or similar event – the owner might let out the house for say two weeks and go on holiday for that complete period. 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. The receipts would however be eligible for the property allowance
Where there is an element of shared occupancy, HMRC give the following examples in the policy paper:
- 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 be eligible for property allowance if rent-a-room relief was not claimed.
- 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. The receipts would be eligible for property allowance.
When will the changes come in?
Should the changes gain Royal Assent to Finance Bill 2018-19, the changes will come in from April 2019.
We can advise on whether the rent a room relief is available and circumstances where it will not be available once the changes take effect.