Rent a Room: HMRC’s New Restriction
A new legislation was proposed in July 2018 to limit the circumstances in which rent a room can be claimed. We take a look at the proposed changes and how people may be affected.
What is Rent a Room?
If a person lets part or all of their home to a lodger, they are entitled to rent a room relief (RARR). The relief provides £7,500 tax free per annum for an individual letting their own accommodation or £3,750 per person if there is more than one recipient, whichever is less. It does not have to be claimed and will apply automatically.
The accommodation must be in the UK and furnished and must be the individuals only or main residence for at least part of the year. The relief does not apply to spaces such as offices, storerooms or garages. Also If charges are applied to the lodger for additional services such as laundry, cleaning or meals these fees can be counted.
The proposed changes to this relief are due to HMRC wanting to place further restrictions on RARR. Currently the rules allow the individual to rent out their whole property to a lodger without them also being there for at least some of the duration.
Why are the changes being introduced?
People who let their homes when they are temporarily absent, for instance when the property is close to a major sporting venue like Wimbledon, are increasingly claiming for RARR. HMRC say this is not the purpose of RARR which was implemented for people who take in lodgers. Another example of temporary absence is if an individual has to live elsewhere while they are carrying out tasks for work.
What is the new legislation?
The policy, active from 6 April 2019, aims to put an end to the temporary absence type claims and ensure that claims are only granted where the occupation of the property as “sleeping accommodation” overlaps “wholly or partly” with the period of letting. This means that as long as the claimant stays in part of the home for at least part of the time each tenant is in occupation, Airbnb type lettings will still be able to claim.
Due to the changes to the legislation you may no longer be able to claim RARR. If this happens you may still be entitled to claim the Property Allowance (PA), which allows a maximum of £1,000 tax-free income.
More consultation
Consultation of the draft legislation ended on 31 August 2018. The outcome of this and the final proposed version of the new rules will be available in October 2018, when the Finance Bill 2019 is published. The rules on the current proposal are unlikely to change but any updates will be reported.