Draft FB 2019 changes to rent-a-room relief
A new shared occupancy requirement condition is to be added to rent-a-room relief from 6 April 2019.
Draft legislation will introduce a new shared occupancy requirement to the conditions for rent-a-room relief with effect from 6 April 2019.
This follows the government’s call for evidence to see how the relief was being used and whether it met the original policy objective, which was to increase the quality and availability of low-cost accommodation by incentivising householders to take in lodgers.
As a result of the call for evidence:
- the legislation will be amended with effect from 6 April 2019 to require a period of shared occupancy between the individual (or a member of his household) and the tenant; and
- the level of the rent-a-room limit will remain at £7,500 per tax year.
The new condition means that the individual or a ‘member of the individual’s household’ must use the residence as sleeping accommodation for all or part of the period of the tenancy in order to qualify for rent-a-room relief on the rents.
Another tenant or someone who is an employee of the individual is not considered to be a ‘member of the individual’s household’ for these purposes. Each tenancy will be viewed separately for these purposes.
There is no restriction as to the length of the tenancy or the length of the shared occupancy. On the face of it, this suggests that one night of shared occupancy would be sufficient.
This is best considered as a tweak to the existing law, rather than a wholesale change. The existing rules require the accommodation to be the individual’s only or main residence for all or part of the income period. This severely restricts the entitlement to rent-a-room relief in situations where the individual lets out the entire property rather than just a spare room.
For example, the availability of rent-a-room relief shown in HMRC’s Property Income Manual at PIM4015 would not be affected by the new shared occupancy condition. Under that fact pattern, there would be no difference in relief should the entire example take place before 6 April 2019 or the entire example take place on or after 6 April 2019.
Where the shared occupancy condition will make a difference is in situations where the individual rents his entire property without acquiring another only or main residence. The example given by HMRC is where the individual lets his home to a visiting family during the Wimbledon tournament and goes on holiday for the whole period of the rental. Where such a letting occurred prior to 6 April 2019, this rental income would have qualified for rent-a-room relief. Where the letting occurs on or after 6 April 2019, the relief will not be available.
Any rental income that is no longer considered to be income for rent-a-room relief purposes from 6 April 2019 may qualify for the trading allowance or property allowance, depending on the underlying nature of the income. Although, if the individual still has some rent-a-room receipts in the same income period, it is necessary to bear in mind the restrictions in ITTOIA 2005 ss 783AN and 783BM, which may limit the availability of the trading allowance or property allowance.
Practical implications: Although the shared occupancy condition is a relatively minor change that will mainly affect those who let their homes whilst they are on holiday, there is confusion in relation to the existing only or main residence condition in the rent-a-room rules that means the relief has sometimes been applied incorrectly in the past. With the shared occupancy condition coming in from 6 April 2019, it is a good time to re-examine the rent-a-room relief rules and consider how these apply to clients’ fact patterns.
When using platforms such as Airbnb to rent out properties, in addition to the tax issues, the client also needs to review:
- the mortgage contract: if the terms do not permit such lettings, this would be a breach of contract and could lead to foreclosure; and
- whether the use of the property for short-term accommodation triggers the requirement to apply for change of use or to pay business rates.
Broadly, where the property is available to let for 140 days or more per year, it is deemed to be a self-catering property and is subject to business rates. The rules are slightly different in England, Wales and Scotland.
In addition, if the property is in Greater London and is actually let as short-term accommodation for over 90 days in a calendar year, then this is considered a change of use and planning permission is required (and may not be granted). According to the summary of responses, the government estimates that 170,000 are using platforms such as Airbnb to engage tenants. Many of these people may already be advised by accountants and tax advisers, but many may not as they believe this income is not taxable. As such, these changes may also represent a marketing opportunity to attract new clients and you might consider including an article on your website or in the local press.
Lynne Poyser, technical writer, Tolley (email@example.com)