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This publication is available at https://www.gov.uk/government/publications/income-tax-rent-a-room-relief/income-tax-rent-a-room-relief
Who is likely to be affected
Individuals letting furnished accommodation in their only or main residence who are currently eligible for rent a room relief.
General description of the measure
This measure provides an additional test that must be satisfied in order for receipts to be eligible for rent a room relief.
The test requires the individual or individuals in receipt of rental income, to have shared occupancy of the residence in question for all, or part of the period, of occupation which gives rise to the receipts.
The measure ensures that rent a room relief is being used as originally intended to encourage rooms to be made available for lodgers.
Background to the measure
Rent a room relief gives an exemption from income tax on profits of up to £7,500 to individuals who let furnished accommodation in their only or main residence.
Rent a room relief provides income tax relief for those letting out furnished accommodation. It was introduced in 1992 to encourage 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 accommodation, giving more choice to tenants and making it easier for people to move around the country for work.
In 2017 the government introduced new tax allowances for property and trading income to simplify the tax system and to help the UK become leaders in the digital and sharing economy. Property allowance gives an exemption to individuals from income tax on profits of up to £1,000 from a property business, unless they qualify for rent a room relief for the tax year and all receipts are rent a room receipts.
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.
Responding to these changes, at Autumn Budget 2017 the government announced a call for evidence into rent a room relief. The call for evidence ‘Call for evidence: rent a room relief’ was published on 1 December 2017 and responses were sought by 23 February 2018.
A summary of responses to the call for evidence ‘Rent a room relief: Summary of responses’ was published on 5 July 2018.
Draft legislation was also published for consultation on 6 July 2018.
The measure will have effect on or after the date of Royal Assent to Finance Bill 2018-19 and will have effect for income tax years beginning on or after 6 April 2019.
Current law providing rent a room relief is contained in Chapter 1 of Part 7 Income Tax (Trading and other Income) Act 2005.
Legislation will be introduced in Finance Bill 2018-19 to provide an additional test of ‘shared occupancy’ that must be met in order for the taxpayer to be eligible for rent a room relief.
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.
The test will apply to each letting or agreement.
Example 1 – An individual lets their house (their main residence) during the Wimbledon tournament to a visiting family. The individual goes on holiday for the whole period of the rental. The receipts from the rental would not be eligible for rent a room relief as there is no shared occupancy during the period of the rental. The receipts would be eligible for property allowance.
Example 2 – An individual rents a room in their main residence to a student during term time. The landlord goes on holiday for a week during the rental period. The receipts would be eligible for rent a room relief as there is shared occupancy for part of the period of the rental. The receipts would be eligible for property allowance if rent a room relief was not claimed.
Summary of impacts
Exchequer impact (£m)
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This measure is expected to have a negligible impact on the Exchequer.
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure impacts on all individuals who let furnished accommodation in their only or main residence, who are now required to satisfy an additional test to qualify for rent a room relief. One-off costs will include familiarisation with the new rules and the test, and it is expected that the impact will be negligible. It is not expected that there will be any on-going costs.
The measure will not impact on family formation, stability or breakdown.
Whilst there is published evidence that provides information on home ownership, and generational and gender variations, HMRC does not collect this data in respect of customers. The conclusion is that this measure will impact on homeowners with protected characteristics.
Impact on business including civil society organisations
This measure will impact individuals who are in the business of renting out rooms in their only or main residence. One off costs include familiarisation with the new rules. It is not expected that there will be any on-going costs.
There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
The overall operational impact of this measure is expected to be negligible.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax returns.
If you have any questions about this change, contact Robert Nott on telephone: 07748634689 or email: firstname.lastname@example.org.