How tax relief can help the homelessby
To mark World Homeless Day, Reshma Johar focuses on rent a room relief, which was introduced to increase the quantity and variety of low-cost rented accommodation.
Homelessness includes those who are sleeping rough as well as those in temporary accommodation such as hostels and shelters. It can even cover people sofa surfing (ie sleeping on the sofas of friends). Because of the vast inclusion, it is incredibly difficult to quantify.
The homelessness monitor is commissioned and funded by the charity Crisis. It is a longitudinal study which provides an independent analysis of the homelessness impacts of recent economic and policy developments across the United Kingdom.
Some of the key findings from the report include:
- Some 305,000 single people, couples and families registered homelessness applications with local authorities in 2019/20. Of these, 289,000 (95%) were judged as homeless or threatened with homelessness.
- Thanks to income protection programmes and eviction moratoria, the Covid-19 pandemic triggered no immediate overall increase in homelessness applications, but temporary accommodation placements surged, particularly of single homeless people, as a result of the emergency measures to protect people at risk of rough sleeping during the pandemic.
- Post-pandemic, 94% of local authorities expect to see an increase in people made homeless after being evicted from the private rented sector and increase in newly unemployed people made homeless by the pandemic.
History of rent a room relief
Rent a room relief was first introduced in 1992 as a means of incentivising individuals to make space available in their only or main residence available for rent. It also made it easier for people to move around the country for work.
In 2017 the government published a call for evidence on the relief following the Autumn 2017 Budget. The key conclusions from this were:
- Rent a room relief will continue to be available at its current level of £7,500.
- There is no evidence to suggest that tenancy length or tenancy type is an appropriate proxy for achieving the government’s objectives for rent a room relief.
- Better clarity needs to be made on the relief in order to achieve its original objective of incentivising the use of spare rooms.
- A new shared occupancy test was introduced in the relief with effect of 6 April 2019.
How does rent a room relief work?
An individual can only claim for the relief if they are in receipt of rent for the use of furnished accommodation. Relief is also available if goods or services are supplied in connection with that use, for example meals, cleaning and laundry. The furnished accommodation provided must be the individual’s only or main residence, or a caravan or houseboat, for all or part of the income period.
How the relief works will depend on the individual’s total rent a room income:
- If rents in a tax year total £7,500 or less, the entire rental income can be received tax free, unless an election to disapply this is made.
- If rents in a tax year exceed £7,500, the individual will need to file a self-assessment tax return. There are two alternative ways the rents may be subject to income tax:
- Calculate the net profit in the ‘usual way’ – total rent less allowable expenses.
- Make an election tax the total rents less the £7,500 allowance, with no deductions for expenses.
The £7,500 limit is for the tax year and per individual rather than per tenant/ lodger. If the individual does not meet the exclusive receipts condition (ie an individual is not exclusively entitled to the rent) the £7,500 limit for the tax year is £3,250.
Elections need to be made via a self-assessment tax return on or before the first anniversary of 31 January following the year of assessment. The same time-period applies if an individual wants to disapply an election.
There is a separate £1,000 tax free property income allowance (ITTOIA 2005 s, 783B) which is designed to provide tax relief for income from property which does not qualify for rent a room relief. It is conceivable that one taxpayer may qualify for both rent a room relief, and the property allowance, on two different sources of rent income from different lettings. For example, he may let a garage to store goods, and separately a furnished room in his home as residential accommodation.
The cash basis is the default method for reporting property rental business income and expenses. This is unless the rental income exceeds £150,000 in a tax year.
World Homeless Day
The day was created from discussions between aid workers around the world, who are helping the homeless in their own countries. The day aims to draw attention to people who experience homelessness locally and provide opportunities for the community to get involved in responding to homelessness.
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Reshma Johar is a Tax Consultant at Carter Backer Winter. She is both ATT and CTA qualified with experience gained from practice and her involvement with the CIOT. She has a particular interest in OMB and private client taxes.