Is your current home earning you valuable rental income from paying guests? HMRC will now start insisting on a share of this income

30 July 2018

‘Rent a Room Relief’ was introduced by the Government back in 1992 to encourage individuals to make spare rooms in their homes available for rent. It allowed property owners, and even tenants to let furnished rooms in their homes, and receive the associated income free of tax, albeit subject to particular income thresholds. 

The income threshold has increased over the years, latterly rising from £4,250 in 2016 to £7,500 from April 2017. If you include the success of online digital marketing, eg Airbnb, allowing individuals to readily advertise and rent their homes on a worldwide platform to foreign visitors, or simply for popular annual events such as Wimbledon, or the Edinburgh Fringe, this has inevitably resulted in more home owners than ever before achieving regular tax free rental income.

This generous tax break, directly contradicts the targeted increases in tax via loan interest restrictions and additional SDLT/LBTT for Buy to Let landlords. It therefore comes as no surprise that the Government have reconsidered the conditions required in order to qualify for Rent a Room Relief going forward.

The Finance Bill 2019 is set to introduce a “Shared Occupancy” clause to the current scheme. The update means that the individual will now have to reside in the property for at least some of the letting period in order to be eligible to claim Rent-a-Room relief, ie they will have to physically be in the property when their paying guests stay there.

This is deliberately targeting the above examples of rent receipts, and so will be welcomed by many Buy to Let Landlords. Note that those who vacate the property for the entire rental period will still be able to claim a property allowance on up to £1,000 of income, (similar to other Buy to Let landlords), but will no longer be eligible for Rent-a-Room relief.

The change is expected to take effect from April 2019.

If you would like to discuss the impact of these changes to your particular circumstances, please contact Lynn Gracie (lynn.gracie@aab.uk) or your usual AAB LLP contact etc.

To find out more about Lynn and the Private Client Tax Team, click here

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