The rent-a-room scheme is a relief which provides that the rent received by an individual from a lodger (currently £7,500) can be exempt from income tax.
This limit is halved if another person is also entitled to the income. For example, where a husband and wife own the property jointly the limit is reduced to £3,750 (£2,125 prior to 2016/17) each. View a recap of the scheme in this article from our December 2017 issue.
What are HMRC not happy about?
HMRC are concerned that the original idea behind the relief – to increase the amount of rooms available to rent – was being abused. The relief was introduced in 1992 but over recent years online apps and social media have made it easy for landlords to cash in on the increasing market.
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 ‘opportunistic’ 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 football tournament – 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 be eligible for property allowance.
Where there is an element of shared occupancy HMRC give the following example:
- 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.
When will the changes come in?
The measure will have effect on or after the date of Royal Assent to Finance Bill 2018-19 and will have effect for income tax years beginning on or after 6 April 2019.