Rent-a-room relief was introduced in 1992 to provide an incentive for people to let out spare rooms in their home. Since its introduction, there have significant changes to the housing market. In addition, the growth of online platforms such as ‘Airbnb’ have made it easy for those with accommodation available for letting to reach potential occupants.
At the time of the Spring budget 2017, the government announced that they would be reviewing rent-a-room relief to ascertain whether continued to provide the right incentives to encourage longer-term lettings. The relief allows an individual to earn up to £7,500 per tax year from letting furnished accommodation in their main or only residence. An individual does not need to own the property to benefit; the relief is also available to those taking in a lodger in a home that they rent. It is also available to those running a bed-and-breakfast or guest house.
Where more than one person benefits from the rental income, the tax-free limit is halved to £3,750. The limits £3,750 per person regardless of how many other people receive a share of the rental income.
Where rental income from letting furnished accommodation in the individuals home is less than the tax-free threshold, the relief applies automatically; it does not have to be claimed and the rental income does not need to be reported to HMRC.
Where the rental income exceeds the threshold, the individual must complete a self-assessment tax return. They have a choice whether to compute profits in the usual way (i.e. rental income less allowable expenses) or whether to simply deduct the £7,500 (or £3,750 as appropriate) allowance rental income.
Even when the relief applies automatically, it will not always deliver the best result. If computing profits in the normal way would result in a loss, the benefit or that loss would be lost under rent-a-room.
The proposed new shared occupancy test will apply from 6 April 2019 and will require the taxpayer (or a member of their family or household) to be living in the residence and physically present for at least some part of the rental period for rent-a-room relief to be available.
Where rent-a-room relief is not available as a result of the shared occupancy test not being met, it should be remembered that there is an exemption for the first £1,000 of property income, to which the new test does not apply.
Remember, when letting accommodation in your home from 6 April 2019 onwards, make sure that there is a period of overlap where you are also in the property to preserve rent-a-room relief.
Source: This article is from Tax Insider and is our attempt to make it informative for you. Why not leave a comment and let us know how we did.
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