Rent-a-room relief abuse tackled in Finance Bill 2018-19

12th July 2018

The UK Government has published its draft Finance Bill 2018-19 which retains the rent-a-room tax relief offered to individuals with spare rooms in their homes to take in a lodger.

However, the relief contains new rules on shared occupancy to ensure that the scheme is utilised by genuine lodgers only and not as a boost for gig economy renters.

Within the Government’s draft Finance Bill 2018-19, plans are afoot 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 of lodger occupation.

Rent-a-room relief allows homeowners to earn up to £7,500 of tax-free income from letting out furnished accommodation in their main or sole residence. The relief is applicable to rooms let to a single individual for 365 days of the year or rooms let out nightly to 365 different individuals.

The rent-a-room relief is separate from the new £1,000 property allowance, introduced from April 2017, which applies more generally to income a homeowner receives from their interest in a property.

The new relief test is designed to tackle system abuse by those in the gig economy due to the rise of property apps. The new ruling means that property owners who rent out their residence for one-off events - such as the Edinburgh Fringe or Wimbledon - and are not in residence at the time will be unable to claim the tax relief.

Jon Stride, co-chair of the Association of Taxation Technicians’ (ATT) Technical Steering Group, welcomed the Government’s decision to leave rent-a-room relief “mostly intact” and the introduction of new legislation that puts the question of sole or shared occupancy “beyond doubt”.

“We did not want to see any more complexity in this relief, which is intended to keep people out of the self-assessment tax system,” said Stride.

“One of the areas we had called for more guidance was whether or not the relief was still available when the landlord was absent on holiday during the letting. This new legislation will put the matter beyond doubt.

“Those who were using the relief to cover letting during their absence and will now lose the relief from April 2019 will need to consider if they can use the new £1,000 property allowance to exempt some or all of the income they receive.”

If you let rooms in your own home, your local TaxAssist Accountant can provide you with advice regarding all tax aspects of letting residential accommodation.

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