HMRC hasn't thought through latest rental tax change, say accountants

Government plans aimed at stopping the abuse of the current Rent A Room tax perk may overcomplicate the system and deter home owners, a trade body warns.

Rent A Room relief provides up to £7,500 tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property. 

The government proposed scrapping or substantially amending the relief in a recent public consultation, suggesting a so-called ‘shared occupancy test’ which would mean the tax break could only be claimed when the landlord is present at the property during the rental period. 

The Association of Accounting Technicians says it fears this would effectively bring an end to the tax break for those renting their whole properties out or who rent out a single room whilst they are away. 

These ‘landlords’ would have to rely on the much lower £1,000 property allowance instead, the AAT claims. 

The government policy paper states: “This ‘shared occupancy’ test will 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. Those taxpayers that do not satisfy this test will no longer be eligible to claim rent a room relief on those receipts.”

Now Phil Hall, AAT head of public policy, says: “Many will be forced to complete a self-assessment tax return when they otherwise wouldn’t and many more will be required to laboriously keep records of when they were and weren’t at home.

“Rent A Room relief is one of the few ways in which people can supplement their annual earnings in a relatively simple and tax efficient manner but this new test will change that. ”

Although the legislation is due to come into force next April it remains unclear as to whether or not HMRC will require taxpayers to prove their shared occupancy or if they are simply relying on taxpayers’ honesty.

“If no proof is required then the scheme will be open to widespread abuse. If proof is required, it’s difficult to see exactly how shared occupancy can be proven in practice, especially when this may relate to irregular nights here and there. Enforcement will be a nightmare and I’m not sure HMRC have properly thought that through” adds Hall.

He says the best solution for landlords, tenants, policymakers and the economy would be to drop these plans and allow the break to continue as it has for over 25 years as a simple to administer, easy to understand tax relief available to all.