Are there changes ahead for rent-a-room relief?

The Autumn Budget 2017 included an announcement that the Government would be taking a look at Rent-a-Room Relief (RRR). This straightforward relief has been around since the early 90’s and in that time has remained relatively unchanged.

The current position

Under RRR an individual can rent a room in their main residence to a lodger and receive up to £7,500 a year, without having to pay tax. If the individual does not have to complete a tax return for any other reason, there is no need to submit a return to report this income. If more than £7,500 is received from the letting of the room the individual can deduct the allowance in arriving at the amount subject to tax, or they can choose to deduct the actual expenditure as normal. In both cases a tax return will need to be completed.

The effect of digital platforms

There is no minimum period of letting stipulated in the legislation, but when first introduced the relief would have mainly applied to longer term lets of at least a few months and possibly several years. However, It is clear from the Government’s call for evidence that it believes the relief may increasingly be applying to shorter term lets of a few days or weeks, and that the ‘tenants’ may frequently be holidaymakers, rather than lodgers.  Such a change would appear to be driven by the number of online platforms linking homeowners to those wishing to rent a room.

The call for evidence from HMRC

HMRC published a call for evidence on 1 December 2017 asking 13 questions, ranging from current use of the relief to any regional differences. With many taxpayers who use the relief potentially not filing tax returns and being unrepresented, one fear is that this call for evidence is unlikely to be heard or answered by the right people.

While amending straightforward rules goes against the tax simplification model, it is recognised that tax legislation does need to move with the times. If the Government does want the relief to target longer term lets, then changes will have to be made. However, it is hoped that any changes maintain the current position whereby someone can take in a lodger, receive up to £7,500 and not have to submit a tax return.

The deadline for responses to the call for evidence is 23 February 2018 and it is likely to be followed by a further consultation during 2018 with any final changes taking effect from April 2019.