In July 2018 HMRC proposed new legislation to limit the circumstances in which rent-a-room relief can be claimed. When and how will the new restriction apply?

Rent-a-room recap

Rent-a-room relief (RARR) allows anyone who lets all or part of their homes, say to a lodger, to receive tax free the lesser of £7,500 or £3,750 for each joint owner of the property, per year. The exemption applies to rents and related payments, e.g. money for laundry services. HMRC now wants to place further restrictions on RARR.

Let while absent

RARR is increasingly being claimed by people who let their homes while temporarily absent from them, e.g. where the property is near to a major sporting venue, such as Wimbledon. It also happens where individuals temporarily have to live elsewhere for, say, work purposes. HMRC says that this wasn’t the purpose of RARR; it was really aimed at people who took in lodgers.

New legislation

New legislation will change the RARR rules so that from 6 April 2019 it can only be claimed in respect of periods where occupation of the property as “sleeping accommodation” overlaps “wholly or partly” with the period of letting. This means it will still be available to Airbnb type letting as long as you stay in part of your home for at least some of the time each tenant is in occupation.

Tip. Where RARR doesn’t apply because of the changes to the rules, you will be entitled to claim the property allowance (PA). This allows a maximum of £1,000 tax-free income.

More consultation

The draft legislation was subject to consultation until 31 August 2018. Details of the outcome and the final proposed version on the new rules won’t be available until the Finance Bill 2019 is published in December 2018. We’ll let you know if this includes any changes to the current proposal, although we don’t anticipate that there will be anything significant.

From 6 April 2019 rent-a-room relief won’t be allowed unless you occupy part of your home for some or all of that time that you’re letting another part of. The £1,000 tax-free property allowance will be available instead.