Policy paper

Rent a Room relief increase

Published 8 July 2015

Who is likely to be affected

Income Tax payers with rental income from letting out a room in their home.

General description of the measure

This measure will increase the level of Rent a Room relief, which provides for tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property, from £4,250 to £7,500 per year. It also increases the level if an individual rents out rooms in a guest house, bed and breakfast or similar, providing that it is their main residence. The increase to the Rent a Room limit will apply from 6 April 2016.

Policy objective

The increase to the Rent a Room relief threshold delivers the government’s objective of supporting individual’s living standards. The measure will also reduce and simplify the tax and administrative burden for those with Rent a Room income greater than the previous level of £4,250.

Background to the measure

This measure was announced at Summer Budget 2015.

Detailed proposal

Operative date

This measure will increase the limit from 6 April 2016.

Current law

Current law is provided in Chapter 1 of Part 7 of Income Tax (Trading and Other Income) Act (ITTOIA) 2005 an individual who qualifies for the Rent-a-Room relief can receive income of up to £4,250 without it being charged to Income Tax (the individual’s limit).

The meaning of ‘Rent a Room receipts’, as described under Section 786 ITTOIA 2005 includes receipts for any meals and cleaning services paid for in relation to the use of the room. Section 789 makes provisions for when 2 or more people are entitled to the rent a room income, in which instance the relief is halved for each person. An explanation of what happens when the limit is exceeded is at sections 795 to 798 and sections 799 and 800 describe the elections that can be made to opt out of the relief.

Proposed revisions

Secondary legislation will be laid to increase the individual’s limit to £7,500 for the tax year 2016 to2017 and following years. This will amend section 789 ITTOIA 2005.

Summary of impacts

Exchequer impact (£m) 2015 to 2016 2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021
-5 -10 -10 -10 -15
These figures are set out in Table 2.1 of Summer Budget 2015 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costing's document published alongside Summer Budget 2015.
Economic impact This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families Individuals who claim Rent-a-Room relief and have income from letting rooms for more than the current threshold will pay less tax as a result of this measure. Individuals who currently pay tax on profits from letting a room, rather than claiming Rent a Room relief, and who have income of more than the current threshold may pay less tax if they opt to claim the Rent a Room relief as a result of this measure.

The administrative burden of completing a Self-Assessment return will be reduced for those individuals that have rental income between £4,250 and £7,500 and opt to claim the relief if this is the only additional income they have to declare on the Self-Assessment return. There are likely to be a small number of individuals (fewer than 10,000) brought out of Self-Assessment as a result of this measure with a small associated reduction in administrative costs.

The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts Statistics on home ownership suggest it is people aged 35 and older who are most likely to live in owner occupied housing, and therefore most likely to benefit from the measure. Those individuals living in the rented sector may find that they are not impacted by the measure because their tenancy agreements prohibit them from sub-letting.

There are no other expected impacts on the equality of groups sharing protected characteristics
Impact on business including civil society organisations The relief is applicable to bed and breakfasts and guesthouses, so long as landlords meet all the requirements of the Rent a Room criteria. The impact on such businesses is expected to be negligible as we predict that most will use reliefs related to their trading activity.

This measure is expected to have no impact on civil society organisations
Operational impact (£m) (HM Revenue and Customs (HMRC) or other) The operational impact and cost to HMRC will be negligible
Other impacts Small and micro business assessment: more small businesses will be able to benefit from Rent a Room relief. This will also reduce and simplify the tax and administrative burden for those businesses now able to benefit from the relief.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.