Tax Relief & Holiday Lettings

The Rent-a-Room scheme is a tax relief designed to encourage homeowners to provide accommodation for lodgers, the theory being that this facilitates flexibility and mobility in the national workforce.

However, HMRC, though they have denied any intended changes, have evidence that the scheme may be being abused by homeowners using online websites such as Airbnb, Spareroom and GumTree to earn extra money from short-term lets, and then claiming the “rent-a-room” tax break.

A single line buried in last week’s budget documentation implies that the Treasury could be considering placing a restriction on these claims by calling for evidence as top how the allowance is used, as it says, to “ensure it is better targeted at longer-term lettings”.

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The rent-a-room tax break now allows homeowners to earn up to £7,500 per year tax free when taking in up to 2 lodgers. The figure was increased from £4,250 to its present level in April last year after more than 20 years at the lower level, under successive governments.

Taking in a lodger – where the landlord must reside in the same furnished house and share facilities – does not create a tenancy but a licence to occupy. This avoids giving the occupants housing rights.

It is thought that thousands of homeowners are now taking advantage of the tax break every year by offering short-term lets, taking people in on “mini-breaks”, mainly visitors from abroad, or elsewhere in the UK. In some cases rooms are let for just one night.

While it has recently become government policy to encourage flexibility and maximise the use of the country’s resources, facilitated by the online “sharing economy”, it has had the effect of encouraging the growth of such short-term lets.

This has not only led to abuse of the rent-a-room scheme, but problems with breaches of lease agreements, where the property is long-leasehold, and also with landlords securing a buy-to-let mortgage on a property used solely for short term lets: buy-to-let mortgages are specifically for assured shorthold tenancies.

Restrictions already exist regarding tax breaks for properties that qualify as furnished holiday lettings (FHL), making it a requirement that any qualifying holiday let property must be available for holidaymakers for at least 210 days in a year.

To qualify as a FHL, several other conditions must be met:

  • It must be within the UK (England, Wales, Scotland and Northern Ireland
  • It must be furnished for normal living.
  • The letting of the property must be run as a business, for profit.
  • Other requirements concerning length of stay and availability are as set out in the Furnished Holiday Lettings Rules

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