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This publication is available at https://www.gov.uk/government/consultations/rent-a-room-relief/call-for-evidence-rent-a-room-relief
1.1 Purpose of the call for evidence
Rent a Room relief, which provides income tax relief for those letting out furnished accommodation, was first introduced in 1992 to incentivise individuals to make spare capacity in their homes available for rent. The government intended this to increase the quantity and variety of low-cost rented housing, giving more choice to tenants and making it easier for people to move around the country for work.
In the last 25 years the housing market has changed significantly. There has been an overall growth in the number of people living in the private rented sector (PRS), more than doubling from 10% of total households in 1992, to 21% in 2016. 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 global network of potential lodgers. These platforms have also opened up the holiday lettings market, by making it much easier for individuals to offer their homes in this way.
The government is committed to supporting the sharing economy, and since April 2017, has introduced a new £1000 tax free allowances for individuals, to make it easier for them to earn a small amount of income from renting out or sharing their property.
The government is also committed to supporting a vibrant PRS, including encouraging longer-term tenancies and ensuring greater certainty for renters. Given this objective, and the pace and scale of change in the sector, the government wants to explore whether the design of Rent a Room relief provides the right incentives for the rental market as it exists today. At Spring Budget 2017 the government announced that it would review Rent a Room relief, to explore the case for making the relief more targeted to support longer-term lettings.
The objectives of this call for evidence are therefore to:
Find out more about the use of the relief: The government’s evidence base on Rent a Room relief is limited by the amount of data landlords are required to complete in their tax return. This call for evidence therefore invites responses that can help the government understand more about who uses the relief, what kinds of activity they are carrying out, why they might choose to let spare accommodation in their main or only residence, and the effect of the relief on the housing market. There is a complex range of individuals and businesses who either use or have an interest in Rent a Room relief, so the government welcomes a broad range of evidence and viewpoints.
Establish whether the relief is working as the government intends: The original purpose of Rent a Room relief was to increase the supply and variety of low-cost residential housing. However, as long as furnished accommodation in a residence is being provided: there is no explicit definition in legislation on the purpose of the let, or the specific length of tenancy that is eligible. As a result, individuals can provide tenancies of any length or purpose – including very short term holiday accommodation – and still benefit from the relief. The government would like to hear views on whether this is an appropriate use of tax relief, or whether the relief should more explicitly support residential accommodation provided on a longer-term basis, or for a certain purpose.
Help inform any potential reform of the relief: The government has not yet formed a view on whether or how the relief should be reformed. So this call for evidence is also intended to seek a range of views on the effectiveness of the relief, what its role should be in the modern housing market, and whether there is any consensus around possible directions for reform.
2. About Rent a Room relief
2.1 How the relief works
Rent a Room relief allows individuals to earn up to £7,500 of tax-free income from letting out furnished accommodation in their main or only residence. This income might otherwise be taxable. Those earning up to £7,500 of income that qualifies for Rent a Room relief, who are not already required to submit a self-assessment tax return, do not have to notify HMRC of this income or that they are benefitting from the relief.
Individuals earning more than £7,500 of income that qualifies for Rent a Room relief must complete a tax return. When calculating their taxable profits, they can either do so in the usual way (by deducting allowable expenses from total rental income) or by simply deducting the £7,500 allowance from rental income.
The current eligibility criteria for Rent a Room relief do not specify any particular length of let, so Rent a Room relief could be given on income from 365 one-day lettings to different people or from one 365 day letting to the same person. Nor do they stipulate that the let should be for any particular purpose, as long as the individual is providing furnished accommodation. So the relief would be available on the let of a room to someone who is staying in the area as a visitor, on holiday, to attend an event, to work, study etc.
2.2 Current Usage
Unless they already complete a self-assessment tax return, those earning less than or equal to £7,500 of income that qualifies for Rent a Room relief do not have to notify HMRC that they are benefitting from the relief. Whilst this removes the administrative burden for most, it also means that HMRC have incomplete data on users of the relief, what type of letting they are offering, or how much income is being relieved.
However, individuals who are already completing a self-assessment tax return must notify HMRC if they are using the relief. Although the Government has no complete data on how the relief is used, HMRC data shows that the number of individuals benefitting from Rent a Room relief and needing to complete a self-assessment tax return has risen by 38% from 2007-08 to 2014-15.
This trend towards greater use of the relief is supported by external evidence from Liverpool Victoria, which suggests that the number of people letting out spare rooms has almost doubled between 2009 and 2014, increasing from 1.4% to 2.7% of homeowners.1
2.3 Changes to the relief since its introduction
When Rent a Room relief was first introduced in 1992 it was set at a value of £3,250. In 1997 the value of the relief was increased to £4,250 and stayed at this value until April 2016, when it was increased to £7,500 in order to reinstate the level of the relief to its real value in 1997. The value of the relief in 2016 exceeded the average annual room rental price in every area of the UK, with London, the most expensive region in the UK, having an average annual room rental price of £7,284.2
From April 2017, the new property allowance will allow individuals to earn up to £1,000 of property income tax free. Although the allowance cannot be used in conjunction with Rent a Room relief on the same source of income: income that qualifies for Rent a Room relief will also qualify for the property allowance.3 The key difference is that the property allowance can apply more generally to any income an individual derives from their interest in a property.
3. Call for evidence
3.1 Evidence sought
Below are 13 questions covering the evidence the government would like to gather. To meet the objectives of the call for evidence outlined above, the government is inviting evidence in the following areas:
- Current use of the relief
- Is the relief working as the government intends?
- Evidence and options for reform
3.2 Who should respond to this call for evidence
The government welcomes responses from anyone with evidence on or experience of Rent a Room relief. This includes individuals who might let out spare rooms and benefit from the relief, tenant’s organisations or other organisations representing groups with an interest in Rent a Room relief, platforms who match guests and landlords, or anyone else with data or other evidence on the effectiveness or purpose of the relief. Respondents may want to draw directly from their own experience and/or a wider understanding of practices in different sectors. Respondents should feel free to provide broad evidence or answer specific questions. The government is particularly interested in quantitative data where possible.
3.3 Consultation questions
Current use of the relief
- Do you have evidence that could help the government understand more about the number of individuals benefitting from Rent a Room relief, and the type of activity that they are carrying out?
- Do you have any evidence that suggests that there are increasing numbers of people letting out rooms in their main home? If so, do you have any evidence that suggests this relates specifically to holiday or guest accommodation rather than residential? Has there been a move towards one or the other over time?
- Is the use of the relief generally by individuals letting out rooms for residential purposes, or as holiday/guest accommodation, or for a different purpose?
- To what extent do those using the relief choose whether to advertise to lodgers for certain purposes (e.g. residential versus holiday/guest accommodation), or are those using the relief responding to demand in the market? If it is a choice, what drives that decision?
- To what extent is the length of tenancy for lodgers a consideration for those using the relief, when advertising a room for rent?
- Do you have any evidence that there are regional differences in whether rooms are being rented out for different purposes or tenancy lengths?
Is the relief working as the Government intends?
To what extent do you think the existence of Rent a Room relief provides an incentive for those using the relief to let out rooms in their home / take on a lodger? If Rent a Room relief did not exist, and only the £1,000 property allowance were available to use against this income, would current users of the relief still take in a lodger?
- How significant is the role of Rent a Room relief in supporting the government’s wider objective to have a diverse supply of housing options? What impact, if any, do you feel the relief is having on the supply of housing? Are there any other economic or social benefits from the relief?
- Do you think that all types of letting activity, regardless of the purpose or length, should be able to benefit equally from Rent a Room relief?
Evidence/options for reform
- Do you have experience or knowledge of a system for taxing Rent a Room income that is simpler, fairer or more effective than that in the UK?
- One example the government is aware of is in Ireland and France, where there is a ‘residential’ test applied to the equivalent tax relief. Do you think the UK should look to restrict access to Rent a Room relief only to those homeowners letting out their rooms for residential purposes? What would be the pros and cons of such an approach?
- Do you think that there should be differences in eligibility for Rent a Room relief according to type of letting activity, purpose or length? Do you think homeowners should only be eligible to claim Rent a Room relief where they are offering a room for let on a longer-term basis (e.g. 31 days or more)? What would be the pros and cons of such an approach?
- Do you have any further ideas or evidence about how the UK might reform rent a room relief?
4. Next Steps
4.1 How to respond
The deadline for responses to this call for evidence is February 23rd 2018. If you are interested in attending a meeting to discuss this work or would like to send a representation by email, please email rentaroomrelief@HMTreasury.gsi.gov.uk. Representations by email are preferable but hard copies can be sent to:
Personal Tax Team
1 Horse Guards Road
Paper copies of this document or copies in Welsh and alternative formats (large print, audio and Braille) may be obtained free of charge from the above address. This document can also be accessed from GOV.UK. All responses will be acknowledged, but it will not be possible to give substantive replies to individual representations.
When responding please say if you are a business, consultancy, individual or representative body. Please provide demographics of your organisation: in the case of representative bodies, please provide information on the number and nature of people you represent.
This call for evidence will inform future policy development. The government will set out its intentions once it has considered the responses received.
Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regimes. These are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 1988 (DPA) and the Environmental Information Regulations 2004.
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