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HMRC internal manual

Property Income Manual

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Rent-a-room: letting as office accommodation

 

Summary

Rent-a-room is aimed at individuals who let furnished residential accommodation in their own homes. You should refuse claims that rent-a-room can apply where rooms in private homes are let as office accommodation.

We published our views on the suggestion that rent-a-room relief might be available for rooms let as offices etc. in TB12K of August 1994. The article is reproduced below.

Extract from TB12K

“There have been some suggestions in the professional press that relief could be available where a residence, or part of a residence, is used as an office or for other trade or business purposes (other than the business of providing furnished living accommodation) and sums are paid in respect of that use. We take the view that such claims are inadmissible since:

  • the words of the legislation, in our opinion, do not permit such claims, and
  • the legislation was never intended to give relief in such circumstances.

Where a room is used exclusively as an office or as other trade or business premises, it is no longer occupied or intended to be occupied as a separate residence - one of the conditions for rent-a-room relief. As such, it is no longer, for rent-a-room purposes, part of the ‘residence’ because F2A92/SCH10/PARA7 permits the identification of parts of buildings which are occupied or intended to be occupied as a residence.

Rent-a-room relief can only apply where ‘relevant sums’ accrue in respect of the use of ‘furnished accommodation’ in a ‘qualifying residence’. The Act does not define ‘accommodation’ which should therefore take its everyday meaning. The dictionary meaning of ‘accommodation’ is ‘lodgings’ or ‘a place to live’ and in our opinion, the normal unqualified meaning of ‘accommodation’ is ‘living accommodation’. Consequently, even if an entire residence, or part of a residence, is used as trade or business premises and payments are made in respect of that use, we take the view that rent-a-room relief will not be due. The payments will not have been made in respect of the use of living accommodation as such.

The Standing Committee debate in Parliament on rent-a-room indicates that the context in which rent-a-room was being considered was that of providing additional residential accommodation and not office or business accommodation. We do not think that the legislation is ambiguous or obscure. However, should Commissioners, for example, consider that it is, then following the decision in the case of Pepper v Hart[1992] 65TC421 it may be possible for them to refer to relevant Parliamentary material. This material supports our interpretation that lettings other than furnished residential lettings are excluded from rent-a-room relief.

The foregoing does not apply to genuine lodgers such as students who are provided with study facilities in their lodgings. In such cases, we would not want to deny relief where a lodger living in the home is provided with a desk, or the use of a room with a desk, which he or she uses for work or study”.

Further analysis

A residence, for rent-a-room purposes, is defined at F2A92/SCH10/PARA7 (for years up to 2004-05) and ITTOIA05/S787 (for 2005-06 onwards) to include not only entire buildings but also parts of buildings which are ‘occupied or intended to be occupied as a separate residence’ (see PIM4001). We think that this definition achieves two objects.

1) It defines the self contained entity within a larger building which can be regarded as a separate residence for rent-a-room. An example would be a single flat within a block.

2) Relevant to the ‘office’ claim - it excludes from the self contained entity any part or parts which are not actually occupied or intended to be occupied as a residence.

It has been suggested that the second part of F2A92/SCH10/PARA7 (that is everything after ‘but’) means that the fact that a let room is used as an office should be disregarded since that room is still part of a building that is a residence. We do not accept this interpretation. The relevant part of paragraph 7 says:

“but a building, or part of a building, which is designed for permanent use as a single residence shall be treated as a single residence notwithstanding that it is temporarily divided into two or more parts which are occupied or intended to be occupied as separate residences”.

We say this applies only where a single residence is divided into two or more parts, and

  • the division is temporary,

and

  • all the parts are occupied or intended to be occupied as residences.

Even where the division into two parts is temporary (this is a question of fact - see also PIM4004) the second part of paragraph 7 does not permit rent-a-room relief where the claimant’s residence is divided into residential and office accommodation. Even where a room (or rooms) in a residence is used partly for business and partly for residential purposes, we take the view that the legislation, taken as a whole, does not permit rent-a-room relief where payments are made for the use of office or business accommodation.

The wording in ITTOIA05/S787 is equivalent and the same arguments apply for 2005-06 onwards.

The intention of the legislation

We do not accept that the rent-a-room legislation is ambiguous or obscure in excluding office lettings. But if you are or may be faced with an argument that it is, you may be able to refer to relevant parliamentary material in support of our interpretation that office lettings are excluded. This follows the guidelines set out Pepper v Hart [1992] 65TC421. CTIAA (Technical) can supply copies of the relevant Hansard extract and advise on the approach to be adopted. Please refer to the Appeals Manual for guidance on the use of Parliamentary material in appeal hearings, but on this topic submit the case to CTIAA (Technical) rather than Cross Cutting Policy (advice on appeals) before using Hansard material in an appeal hearing.

Commissioners hearings

The admissibility of the debit for ‘rent’ in the accounts of the ‘payer’ may also be vulnerable in these cases to a challenge under the ‘wholly and exclusively’ rule if it can be shown that the ‘arrangements’ were fiscally motivated. You should contact CTIAA (Technical) for detailed advice before listing any appeals for a contentious appeal hearing on this point.

Adverse Commissioners decisions

If Commissioners at a contentious hearing accept that rent-a-room applies to office lettings, we may want to require a Stated Case. Please make an immediate report to CTIAA (Technical).