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Should rent-a-room relief include rent from adult son?

'Rent' paid by son for rent-a-room-relief

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Taxpayer receives money from live-in lodgers in her home from two people; one is her adult son who pays £130 per week which covers for food, laundry etc as well as the room. The “third-party” lodger pays £80 per week, without food and laundry.

In my view only the income from the unrelated lodger should be counted for the rent-a-room relief calculations, as the money paid by the son is outside the scope of tax - being a purely family relationship.

HMRC don’t agree. They say the son’s payments should be included in the rent-a-room calculations.

 

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09th Jun 2016 17:00

I have a very hard time imagining how HMRC would be able to contest the assertion that the son's contributions were for anything other than a share of the bills and household expenses, which is absolutely the assertion that should be made. In my mind at least that's exactly what the typical digs paid to parents are for, they're not rent.

I would have a quick calculation showing how £130 a week is an equitable percentage of the heat & light, food and whatnot to hand if they want it justified and only include the lodger's amount as rent.

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09th Jun 2016 17:12

ITTOIA 2005 Section 786 notes that to fall within the meaning of rent a room receipts the rent and payment for meals, cleaning, laundry etc must be receipts that would otherwise be brought into account in calculating the profits of a trade. The issue to be addressed therefore must be - was there an intention to trade in terms of the relationship between the parent and the adult child, judged by reference to the normal indicia of trading? If there was no profit seeking motive then the HMRC view is wrong. If there was a profit seeking motive in the relationship and a profit is made then why does the family relationship prevent assessment?

Looked at another way if there is no profit made after taking into account the full value of the accommodation and services provided to the child opting to account for the matter as a trade rather than under the simplified accounting for rent a room might get rid of the profit anyway. If more detailed accounting created a loss I wonder whether HMRC would be willing to allow relief for those losses against other income?

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By Tony S
09th Jun 2016 19:33

£130 quid a week!! I'm going to forward this post to my son!

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to Tony S
13th Jun 2016 13:11

Tony S wrote:

£130 quid a week!! I'm going to forward this post to my son!

Home counties prices.

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09th Jun 2016 22:04

If there was no third party lodger this question would not even arise.
How do HMRC know about the family arrangement?

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By birdman
13th Jun 2016 13:03

Does the £130 include taxi services, telephone, cleaning up after mates have been round etc etc? If not, explain that the sums include back rent for the past 18 years.

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13th Jun 2016 13:23

You have a fundamental misunderstanding that the rental income from the son is outside the scope of tax.

The monies received is for rent. Any profits from the rent are taxable and the income certainly contributes to the rent a room calculation.

Most parent / children rental relationships result in no tax payable because the costs are broadly the same as the income and / or it falls within the scope of rent a room. I think this is where your misunderstanding has originated.

You now have to argue that the monthly contribution isn’t for furnished accommodation. Your alternative is to accept HMRC’s correct conclusion about the income.

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to cheekychappy
13th Jun 2016 17:22

This is the unintended result of poorly drafted legislation. There may be 100,000 households, perhaps many more where the sons and daughters are unable to get on to the housing ladder or afford rents in their local area after graduation.
All the general publications mention the word 'Lodgers'. The newspapers use the word 'make' where parents receive up to £7,500 a year in a larger home from contributions to household expenses.
Somebody will have to take the matter to the high court if they want to argue that family members who are not owners, should be excluded.
I don't believe that families even know that they are required to report contributions of over £7,500 per year.
South of Watford, a rent of £130 a week inclusive of everything is an absolute bargain - in reality, dirt cheap.
I don't suppose the Chancellor would have had the guts to announce to the House, that parents with grown up children would have to declare income over £7.5k during the summer budget statement. 3 children paying Mum & Dad £50 per week each, and they are over the limit !

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14th Jun 2016 18:02

Cheekychappy is wrong; Rebecca does not have a fundamental misunderstanding.
Income tax, as a judge once said, is a tax on income. A contribution from a family member towards the household costs is just that; it is not the recipient’s income. This is so even if a ‘profit’ is made. Being a mum with an adult son is not a trade or a property business or a source of sundry income. Rent-a-room relief is to provide relief for people who take in lodgers or offer B&B. Its purpose is not to give relief parents with adult children living at home because such relief is not necessary as there is no income.

DSP Financial Management misunderstands; this is not a case of poorly drafted legislation. It is a case of an HMRC officer’s ignorance of the law. Although if Rebecca has been describing the son as a lodger then the officer's mistake is understandable.

By the way, what is a “live-in lodger”? Tautology?

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