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Making the most out of your home? Rent a room relief

For years, it has been very common for people to rent out a room in their home for all sorts of reasons and take advantage of rent a room relief.

The owner (landlord) of the property can currently earn up to £7,500 in gross rents per year tax free by renting a room to a lodger provided certain conditions are met. The accommodation must be furnished, situated in the UK and the owner’s only or main residence for at least some of the year. The relief does not cover letting as an office, storeroom or garage or to a company or partnership. However, it does cover provision of services such as bed and breakfast.

The maximum relief that can be obtained tax free is £7,500. Importantly this figure refers to gross rents and not net profits. If the limit is exceeded you can elect to reject the relief and be taxed instead on total net rental profits under the normal income and expenditure rules. Alternatively, you can take the relief and be taxed on the excess gross rents over £7,500.

The way the law is currently written, rent a room relief is available in a number of scenarios and includes where you let out your whole home, for example, while you go away on holiday. So, in this situation, the tenant does not need to there at the same time as the landlord. However, this is about to change.

The growth of internet property rental sites such as Airbnb has led to an increased number of people using the relief which has in turn prompted a change in the way the relief will be applied in practice.

Shared occupancy

From April 2019, rent a room relief will be subject to an additional test of shared occupancy. Basically, this means you must be living in the property for at least some of the time that the accommodation is let; letting out the property whilst you are absent will no longer qualify.

The property must be used as sleeping accommodation for you or a member of the family, for a period which overlaps, wholly or partly, with the letting. The test will apply to each letting.

The change is clearly intended to make sure rent a room relief meets the original policy objective: to provide an incentive for the provision of furnished accommodation to lodgers. It will remain a tax efficient and convenient relief where the conditions are met and worth considering. For others, the change may be bad news and further thought may be required.

If you would like to discuss how this change impacts on your affairs, please get in touch.



Date: 22nd October, 2018
Author: Cathy Corns


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