New rules are on the way to stop landlords and property owners pocketing tax-free cash on bed-and-breakfast and holiday let income.
Rent-a-room relief was aimed at helping home owners let their spare rooms in a bid to reduce the housing crisis.
Instead, many have rented out their homes to tourists while they moved out and claimed up to £7,500 a year in tax-free income.
After a consultation, HM Revenue & Customs said:
“The government intends to introduce a new ‘shared occupancy clause’ for rent a room relief, which will require the individual to be resident in the property and physically present for at least some part of the letting period. Doing so will return the relief to its original purpose of incentivising the letting of spare rooms.”
The move is aimed to stop home owners profiting from tax-free rentals through web sites like AirBnB.
HMRC gives two examples of how the new rent-a-room scheme is likely to work:
- A home owner lets their main residence during the Wimbledon tennis tournament to a visiting family while going on holiday for the whole rental period. Any rent received would not be eligible for rent a room relief as there is no shared occupancy during the rental, but should be declared as taxable rental income
- A landlord rents a room in their home to a student during term time. The landlord goes on holiday for a week during the rental period. The income qualifies for rent a room relief as occupancy is shared for part of the rental.
“This measure will impact individuals who are in the business of renting out rooms in their only or main residence,” said the HMRC rent a room consultation report. “The change is expected to have negligible effect on anyone else.”