By Sheelagh Jenkins, Accountant at Hive Business

In July 2018 the Government announced potential changes to the rules for the Rent a Room Scheme, in what was generally seen as a move to target internet property letting sites such as Airbnb. Initial internet searches make it appear that the changes came into effect on 6 April 2019. However, the idea of changing the scheme was subsequently scrapped. Although no changes have been made at present, it is likely to be an area that will continue to be closely monitored if the Government wish the Scheme to better reflect its original purpose, which was to provide more furnished accommodation for lodgers.

The Rent a Room Scheme allows taxpayers to earn up to £7,500 a year tax-free for letting out furnished accommodation in their own home. The limit is reduced to £3,750 per person where two or more people share the income. As much of the home can be let out as the owner wishes, and the limit is the same even if the property is not let throughout the twelve month period. The tax exemption is automatic if the total amount earned is less than the threshold. However, a tax return must be completed to opt-in and claim the tax-free allowance if more than this is earned.

Current rules mean that Rent a Room relief is available even if the whole home is rented (e.g. while the owner goes on holiday) and the owner and the tenants are not there at the same time. The proposed changes to the Scheme would have added an additional test to the requirements for the relief to be available – that of ‘shared occupancy’. This would have meant that the owner, or a member of the owner’s household, had to be living in the property (i.e. using the home as sleeping accommodation) for at least some of the time that the accommodation was let. The test would apply to each letting.

It has been known for some time that a tax battle would be likely to follow the runaway success of Airbnb (and similar platforms) as a means of generating income. These recent proposals may be an indication of changes to come in the future. However, in the meantime, Rent a Room remains a valuable tax relief.

If you want more detailed information about the Rent a Room Scheme and how it may apply to you, please get in touch.