Simple Landlords Insurance

Get a quote Retrieve quote call us 0808 172 5600

Accountants urge U-turn on 'rent-a-room' tax changes

Monday 06 August 2018

The government has been urged to drop plans to change ‘rent-a-room’ rules , which allow people landlords to earn up to £7,500 a year tax-free from letting out a spare room, by the Association of Accounting Technicians (AAT).

The government intends to introduce a new “shared occupancy test”, so tax relief can only be claimed when the landlord is present at the property during the rental period.

This will mean that those letting out their whole property will now have to pay more tax or  start paying tax if they have not done so before.

The government believes that the new shared occupancy clause will ‘return the relief to its original purpose and clarify its role in the wider property tax regime’.

The government policy paper states: “This ‘shared occupancy’ test will provide that the individual, or a member of their household, in receipt of income, must have a ‘shared occupancy’, a physical presence for all or part of the period of the rental, with the individual whose occupation of the furnished accommodation is generating receipts.

“Those taxpayers that do not satisfy this test will no longer be eligible to claim rent a room relief on those receipts.”

But the AAT fears that the new test will add unnecessary complexity to the tax system and create problems if shared occupancy must be proved.

The 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.

These landlords will have to rely on the much lower £1,000 property allowance instead.

Phil Hall, AAT’s head of public affairs and public policy, said: “This will add unnecessary complexity to the tax system.

"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.”

Although the legislation is due to come into force in April 2019, it remains unclear as to whether or not HMRC  will require taxpayers to prove their shared occupancy or if they are simply relying on taxpayers' honesty.

Hall added: “If no proof is required then the scheme will be open to widespread abuse.

"If proof is required, it’s difficult to see exactly how shared occupancy can be proven in practice, especially when this may relate to irregular nights here and there. Enforcement will be a nightmare and I’m not sure HMRC have properly thought that through.

“A shared occupancy test is a headache being created for what the Treasury’s own analysis states will be a “negligible” impact on tax receipts.

“The best solution for landlords, tenants, policymakers and the economy would be to drop these plans and allow rent-a-room relief to continue as it has for over 25 years as a simple to administer, easy to understand tax relief that’s available to all.”
 

  • The emerging landlord

    It is a time of tremendous change for landlords in the UK.

    Visit microsite
  • Cover from as little as £112.68*

    Get a quote

Call 0808 172 5600

open weekdays 9am-8pm, Saturdays 9am-5pm, and Sundays 10am-4pm.

Get a quote

We want to add value to landlords with interesting news and views! Our Hub includes information and opinions on the housing market from a variety of expert sources – please just be aware it doesn’t always reflect Simple’s opinion, or the products and services we provide.

Filed Under:

Related news articles

Support landlords and bring empty homes back into use

Thursday 14 March 2019

The Government is being urged to bring forward tax measures to address the rise of empty homes, after new figures revealed the number in England increased by around 30,000 from almost 606,000 to over 634,000 in the 12 months to October 2018.