Shared occupancy test for rent-a-room relief will add ‘unnecessary complexity’

The government’s plans to change the rules on its ‘rent-a-room’ scheme, which allows people to earn up to £7,500 a year tax-free from letting out a spare room, is likely to ‘add unnecessary complexity to the tax system’, according to the Association of Accounting Technicians (AAT).

The government intends to introduce a new “shared occupancy test”, which means that relief can only be claimed when the landlord is present at the property during the rental period.

This will mean that those letting out their whole property will now have to pay more tax or to start paying tax if they have not done so before.

The government believes that the new shared occupancy clause will ‘return the relief to its original purpose and clarify its role in the wider property tax regime’.

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.”

But the AAT fears that the new test will add unnecessary complexity to the tax system and has other shortfalls, particularly around how shared occupancy can be proved.

The shared occupancy test will effectively bring an end to rent-a-room relief for those renting their whole properties out or who rent out a single room whilst they are away. These landlords will have to rely on the much lower £1,000 property allowance instead.

Phil Hall, AAT’s head of public affairs & public policy, said: “This will add unnecessary complexity to the tax system. 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.

“It’s also likely to reduce accommodation availability and choice because many “landlords” will simply choose not to rent out their spare rooms when they are not present.

“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 shortly in April 2019, 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.

Hall added: “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.

“A shared occupancy test is a headache being created for what the Treasury’s own analysis states will be a “negligible” impact on tax receipts.

“The best solution for landlords, tenants, policymakers and the economy would be to drop these plans and allow rent-a-room relief to continue as it has for over 25 years as a simple to administer, easy to understand tax relief that’s available to all.”

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