On personal tax, the new rent-a-room relief test will require the individual or individuals in receipt of rental income, to have shared occupancy of the residence for all, or part of the period, of occupation which gives rise to the receipts. This is in part to tackle abuse of the system through growth of the gig economy and property apps.

It also means that if a house is let out for say a two-week period over Wimbledon fortnight and the owner is not in residence, they will not be able to use the tax relief.

However, the government backed down on plans to limit claims to those who rented for periods of less than 30 days, as set out in the initial consultation last year.

This change will come into force under Finance Bill 2018-19 and draft legislation is currently out for review until 31 August 2018.

The measure will come into effect from April 2019.

The measure ensures that rent a room relief is being used as originally intended to encourage rooms to be made available for lodgers.

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.

The property market has changed dramatically since the tax relief was first introduced in 1992 and is now a lucrative tax relief for people subletting rooms via apps and the wider sharing economy, which the government wants to bring into the mainstream tax framework.

Contrary to initial fears that the reforms would be far-reaching, the government has watered down its approach from proposals set out in the initial consultation.

Jon Stride, co-chair of ATT’s Technical Steering Group, said: ‘Rent-a-room relief is a popular and valued incentive for people with spare rooms in their homes to take in a lodger. We are pleased that it will remain mostly intact.

‘We did not want to see any more complexity in this relief, which is intended to keep people out of the self assessment tax system. One of the areas where we had called for more guidance was whether or not the relief was still available when the landlord was absent on holiday during the letting. This new legislation will put the matter beyond doubt.

‘Other options for reform had included restricting the relief to letting of more than 30 days. This would have been complex to police and, without further complications, could have excluded those who provided accommodation during the mid-week period only.’

Shared occupancy

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.

Legislation

This clause introduces an additional non-exclusive residence test into s786 of Chapter 1 Part 7 Income Tax (Trading and other Income) Act 2005 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 income to share occupancy of the residence in question with the individual whose occupation of the furnished accommodation is generating the receipts.

The new rules come into force from 6 April 2019.

HMRC policy paper: Income Tax: rent-a-room relief

Report by Sara White