In February, the ATT responded to the government’s call for evidence on rent-a-room relief.
The use of rent-a-room relief has increased in recent years, and the call for evidence (the call) was issued to find out more about:
- The current use of the relief
- Whether the relief is working as intended
- What the potential options for reform are
To gather evidence to inform our response, we carried out a joint survey of ATT and CIOT members. The survey proved popular, with just under 700 people taking part.
Rent-a-room relief was introduced in 1992 to incentivise individuals to let out rooms in their own home and thus increase the quantity and variety of low cost housing. The availability of the relief depends on the nature of the accommodation provided and not who is using it. It can be claimed by those providing accommodation to long-term lodgers, students, people working away from home during the week, and holiday or short-term visitors. HMRC confirmed at the time that it could also apply to short-term lets during events such as the Wimbledon fortnight.
The recent development of online platforms has made it easier for someone with a spare room to find holiday guests. The government is concerned that the availability of the relief in these circumstances could put commercial guest houses and B&Bs at disadvantage. One potential option for reform suggested in the call was a proposal to restrict the relief to residential letting only, defined as stays of 31 days or more.
Rent-a-room relief is available for lettings of furnished accommodation in an individual’s own or main residence. The relief covers not just the “rental” element of receipts, but also any payments for goods and services such as meals or laundry supplied with the accommodation.
A residence for the purposes of the relief means “a building or part of a building occupied or intended to be occupied as a separate residence” and also includes houseboats and caravans.
If a residence is temporarily divided into two or more self-contained units, it can still be treated as a single residence for the purposes of the relief. Whether the division is temporary or not is a question of fact, and HMRC guidance provides some points to consider here. Responses to the joint survey suggested that this is an area that can be challenging to deal with in practice and, with around 18% of respondents making claims for relief where there is a temporary division, more clarity was requested.
What did the survey highlight?
Current use of the relief
As might be expected, the main factor driving the decision to let a room was the need for additional income. The most common use of the relief seen by respondents was letting to a lodger, with most respondents of the view that the existence of the relief provided an incentive to take in a lodger.
The relief limit
The relief is available in full if gross income receipts (including payments for any services) are less than £7,500. This limit is reduced to a limit of £3,750 each if the property is let jointly by two or more individuals. The relief applies automatically and does not have to be claimed – although it is possible to opt out if, for example, the individual made a loss under normal tax and accounting rules.
Partial relief is available if the gross receipts exceed the individual’s limit. The individual can either opt to calculate their profits following standard principles, or pay tax on the excess of gross rental income over the relief limit. There is no allowance for any expenses under the second option. It should also be noted that the new £1,000 property allowance cannot be used where rent-a-room relief has already been claimed on the same income source.
Three-quarters of respondents agreed that the increase in the limit from £4,250 to £7,500 in April 2016 increased the incentive to let rooms and 71% felt that the current limit was appropriate.
Given the increasing use of online sharing platforms such as Airbnb, the crucial question in terms of reform was of course whether or not the relief should continue to be available to those letting rooms out for holiday accommodation, or if it should be restricted to purely residential lets. The majority of respondents indicated that no more than 24% of the claims that they saw related to the provision of holiday lets.
The survey results showed that respondents were very much divided on whether the relief should remain available for holiday accommodation. 52.6% agreed that it should, while 47.4% felt that it should be restricted to residential lets only.
The survey also asked if rent-a-room relief should be merged with the £1,000 property allowance to give a single relief for letting your main residence. Although the two reliefs do very different things, there was some enthusiasm for this, with around 59% of respondents in favour.
A number of respondents reported that the relief was a useful administrative simplification and that there would be little benefit in further complicating this area.
At present the government is analysing responses to the consultation, so we don’t yet know if there will be any restrictions introduced. Given the split of opinion in the survey, it is very tempting to conclude that the simplest thing would be to leave the relief as it is. However, it may be prudent to advise any client who is providing holiday accommodation and using the relief that the government is looking at this area.
Helen Thornley is technical officer at ATT
Subscribe to get your daily business insights