AAT: Shared occupancy test for rent-a-room relief adds unnecessary complexity

The government has agreed to retain rent a room relief at its current level of £7,500 per annum. However, it has also proposed a new “shared occupancy test” in order for those renting their spare rooms to continue to qualify for the relief. AAT believes 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.

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.”

Phil Hall, AAT Head of Public Affairs & Public Policy, says:

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 (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.

Phil 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.

To make your views known about this proposed new “shared occupancy test”, please contact the Treasury's rent-a-room relief team before August 31st 2018. 

Read AAT’s January 2018 submission to the HM Treasury Call for Evidence