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AAT questions proposed rent-a-room relief test

The Association of Accounting Technicians (AAT) has questioned the necessity of a new shared occupancy test proposed by the Government, designed to minimise abuse of the rent-a-room tax relief system.

Last month, the Government published its draft Finance Bill 2018-19. Within it was a plan to implement a new rent-a-room relief test, requiring individuals in receipt of rental income to have shared occupancy of the property for all or part of the period a lodger’s occupation.

However, the AAT believes the test would “add unnecessary complexity to the tax system and has other shortfalls, particularly around how shared occupancy can be proved”.

Rent-a-room tax relief gives individuals a chance to earn up to £7,500 tax-free income from letting out furnished accommodation within their primary or sole residence. It is available to landlords that choose to let a room out to one person for an entire year or let out rooms nightly to hundreds of people throughout the year.

The Government’s decision to tackle abuse of the rent-a-room relief system was due to the rising popularity of peer-to-peer property rental platforms online such as Airbnb and HomeAway.

The AAT claims the new 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 whilst they are away”.

Landlords that are absent when letting out rooms or entire properties will have to rely on the new £1,000 property allowance instead.

Phil Hall, Head of Public Affairs and Public Policy, AAT, believes the proposed shared occupancy test could signal a decline in the number of properties and rooms available to rent as landlords simply won’t have the inclination or time to get through the necessary red tape.

“This will add unnecessary complexity to the tax system,” said Hall. “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.”

The legislation is due to take effect from April 2019. As yet, it is unknown whether HM Revenue and Customs (HMRC) will create a new system for landlords to prove their shared occupancy or whether they will rely on the honesty and transparency of landlords.

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