Accountants have criticised government plans to introduce a rule that means the owner has to be living in the property in order to qualify for tax relief for renting out a room in their house
The Association of Accounting Technician (AAT) says that the new rules ‘will add unnecessary complexity to the tax system and has other shortfalls, particularly around how shared occupancy can be proved’.
Rent a Room relief provides up to £7,500 tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property.
The government proposed scrapping or substantially amending the relief in a recent public consultation but announced earlier this month that it will be retained at its current level of £7,500 per annum.
There will now be a ‘shared occupancy test’ which means that relief can only be claimed when the landlord is present at the property during the rental period.
‘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,’ says the AAT.
Absent landlords will have to rely on the much lower £1,000 property allowance instead.
The move was prompted by concerns over the growth of peer-to-peer rental marketplaces such as AirBnB.
‘The housing market has changed significantly in the last 25 years. The emergence and growth of peer to peer online marketplaces and digital platforms has also had a significant impact on the market, making it easier to advertise rooms and putting those with spare accommodation in touch with a national and global network of potential occupants,’ said HMRC in a statement earlier this month.
The AAT claims the test will place an unnecessary burden on landlords and limit the amount of accommodation available.
‘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,’ said Phil Hall, AAT Head of Public Affairs & Public Policy.
Although the legislation is due to come into force shortly (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.
‘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,’ said Hall.
‘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.’
Individuals can comment on the proposals by emailing email@example.com before August 31st 2018.
Report by Rob Munro