Tax Insider Tips: Property Tax Implications

8th May 2019
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Overview Of Budget 2018 Changes

The Chancellor, Philip Hammond, presented the 2018 Budget on Monday 29 October. Despite the spectre of Brexit causing many measures to be put on hold, there were a number of significant announcements in relation to property tax.

As in recent years, landlords will feel the brunt of some of the changes, particularly as regards the forthcoming changes to lettings relief and the final period exemption for private residence relief purposes. While the exact details of these changes are as yet unknown – the Government is to consult on the detail – there is some time to plan ahead and to take advantage of the current more generous reliefs before the changes are introduced with effect from 6 April 2020.

Rent-a-room Relief

Rent-a-room relief was introduced in 1992 to provide an incentive for people to let out spare rooms in their home; the aim being to increase the availability of low-cost rented accommodation and make it easier for people to move around the country for work.

Nature Of Rent-a-room Relief

Rent-a-room relief allows an individual to earn up to £7,500 per tax year from letting furnished accommodation in their main or only residence. An individual does not need to own the property to benefit – the relief is also available to those taking in a lodger in a home that they rent (although the ability to do this will depend on the nature of their rental agreement and whether sub-letting is permitted). It is also available to those running a bed-and-breakfast or a guest house.

Where more than one person benefits from the rental income, the tax-free limit is halved to £3,750. The limit is £3,750 per person regardless of how many other people receive a share of the rental income.

Where rental income from letting furnished accommodation in the individual’s home is less than the tax-free threshold, the relief applies automatically; it does not have to be claimed and the rental income does not need to be reported to HMRC.

Where the rental income exceeds the threshold, the individual must complete a self-assessment tax return. They have a choice whether to compute profits in the usual way (rental income less allowable expenses) or whether to simply deduct the £7,500 (or £3,750 as appropriate) allowance from rental income. The best option will depend on whether expenses are more or less than the rent-a-room allowance – if they are more, the normal rules will be more beneficial, if they are less, rent-a-room will provide a more favourable result.

Proposed Changes

At the time of the 2017 Spring Budget, the Government announced that they would be reviewing rent-a-room relief to ascertain whether it continued to provide the right incentives to encourage longer-term lettings.

Following a call for evidence looking at how the relief was used, the Government confirmed that they would be keeping the rent-a-room threshold at £7,500. However, they also announced that they would be introducing a new shared occupancy test to ensure that rent-a-room relief was better targeted to meet the stated aim of providing an incentive for those with spare rooms to take in a lodger.

Legislation for the proposed shared occupancy test was published in draft in July 2018. The intention was for it to be included in the Finance Bill 2018-19. The proposed test, which was to apply from 6 April 2019, required a period of overlap where the taxpayer or a member of his family used the property as sleeping accommodation at the same time as the tenant. The test would have denied rent-a-room relief if the taxpayer had been away from the property for the entire time that it was available to the tenant and would have taken many Airbnb- type lets outside the scope of the relief.

Budget U-turn

It was announced at the time of the Budget that following consultation on the draft legislation, in order to maintain the simplicity of the system, the legislation for the proposed shared occupancy test would not be included in the 2018-19 Finance Bill.

This is good news for those who let out a furnished room or rooms in their main residence while they are away, for example, through Airbnb or similar, as they will continue to be able to benefit from the availability of rent-a-room relief as long as the conditions for availability of the relief are met.


This is an excerpt from our report Property Tax Implications of the October 2018 Budget, get the full scoop here.

Property Budget