'Rent A Room' rules to be tightened

10 July 2018

The government is planning to change the rules on its Rent A Room scheme, which allows people to earn up to £7,500 a year tax-free from letting out a spare room, following the outcome of a call for evidence on whether the current system is working.

HM Revenue & Customs plans to introduce a new shared occupancy test, which means that the relief will only be available to people who are living and physically present in the property during some stage of the letting period. This will mean that those letting out their whole property will now have to pay more tax or to start paying tax if they haven’t done so before.

The government says the new measures “will ensure rent a room relief meets its original purpose of incentivising people to let spare rooms rather than whole properties”.

Its consultation concludes: “It is the government’s view that the purpose of rent a room relief has always been to support spare rooms, rather than whole properties, which should properly fall under the normal rules for taxing property income. A new shared occupancy clause will return the relief to its original purpose and clarify its role in the wider property tax regime.”

Stefanie Tremain, senior manager at accountancy firm Blick Rothernberg, says: “HMRC considered a number of different ways to reform Rent a Room relief (including reducing the income threshold or ensuring it only applies to lets lasting at least 31 days) and there was a concern it could be scrapped altogether. 

“The proposed shared occupancy test does, therefore, seem to be the fairest way to ensure the relief serves its original purpose, which is to encourage people to rent out space in their own homes, and remains flexible.”

The government will include legislation for the shared occupancy clause in the Finance Bill 2018 to 2019 and the change will take effect from 6 April 2019.


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