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Changes to the Rent a Room Scheme – from April 2019

By Cheaper Accountant, Nov 26 2018 06:26AM

We previously blogged about the Rent a Room scheme that allows an individual to receive up to £7,500 a year completely tax free by letting out a furnished room within your home. Your home can be rented or owned with this tax free scheme applying to both scenarios.


How does this work?


You will receive automatic tax relief when the rental income you receive remains below the threshold of £7,500 during the tax year (6 April to 5 April the following year).


Where more than one individual receives income from letting a furnished room the threshold is reduced by 50% meaning that each separate person can receive up to £3,750 tax free.


If you receive rental income from letting a furnished room that is over and above the threshold of £7,500 (or applicable reduced threshold if income is received by more than one person) then you will pay tax on the excess amount only.


What if I make a loss?


Utilising the Rent a Room scheme may not always be the best option for all taxpayers. You will benefit more from not using the scheme if your expenses are greater than the rent received and you make a loss. Being able to carry forward any loss will reduce the tax due on future rental profits.


What are the New Changes?


To ensure that the tax relief gained from using the scheme is aligned to the aim of increasing the supply of affordable residential accommodation, rather than the benefit simply going to users of websites such as Airbnb, a new shared occupancy test will be introduced.


Shared occupancy test


Under this new test, the individual receiving the rental income must have a ‘shared occupancy’ for all or part of the letting period.


This indicates that the physical use of the property in question by the tenant must overlap with the use of the residence as sleeping accommodation by the landlord or a member of his or her household.


A second tenant cannot be used to satisfy the test. As things currently stand a period of overlap of only one night would satisfy the test but this could change when further guidance is issued by the Government during the coming months.


So a tax on Airbnb landlords I hear you say!!! ….. you could be right.

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