HMRC’s rent-a-room scheme currently allows individuals to receive up to £7,500 of gross income from renting out spare rooms in their only or main home without a liability to tax arising. Broadly, as long as income is below the annual threshold, it does not need to be reported to HMRC.
However, the emergence and growth of peer-to-peer online marketplaces and digital platforms (for example Airbnb) has made it significantly easier to advertise rooms and put those with spare accommodation in touch with a national and global network of potential occupants. HMRC are of the opinion that this type of income should not be eligible for rent-a-room relief but should instead be taxed under the normal property business income rules. Consequently, during 2018, HMRC worked on proposals to introduce a ‘shared occupancy’ test. The test would provide that the individual, or a member of their household, in receipt of income must have a ‘shared occupancy’, a physical presence for all or part of the period of the rental, with the individual whose occupation of the furnished accommodation is generating receipts.
Although it was intended that this change would take effect from 6 April 2019, the government announced in the Autumn Budget 2018 that, in order to maintain the simplicity of the system, the legislation would not be included in Finance Bill 2018/19. Therefore, the rules currently remain unchanged, and rent-a-room continues to provide a valuable exemption in many cases.
As the legislation stands, in order to qualify under the rent-a-room scheme, the accommodation must be furnished and a lodger can occupy a single room or an entire floor of the house. However, the scheme doesn’t apply if the house is converted into separate flats that are rented out. Additionally, the scheme cannot be used if the accommodation is in a UK home which is let whilst the landlord lives abroad.
The rent-a-room tax break does not apply where part of a home is let as an office or other business premises. The relief only covers the circumstance where payments are made for the use of living accommodation.
Finally, it should be noted that the £1,000 property allowance, which was introduced for 2017/19 onwards, generally applies in relation only to income from a property business that is not income under the rent-a-room regime.