Opinion Former Article

Survey results suggest caution on changes to rent-a-room relief

The results of a survey of members of the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) suggest that there is no clear consensus in the tax profession to reform the increasingly popular rent-a-room relief.

Originally introduced to incentivise people to let rooms in their own home the use of rent-a-room relief1 has increased in recent years. While primarily envisaged for use by those providing traditional lodgings, the relief is also available to those providing rooms for short term holiday letting. The Government is currently exploring reforms. It is concerned that the relief, combined with the development of online platforms such as Airbnb – which make it easier for someone with a spare room to find holiday guest/s – could give those people an unfair tax advantage2 over commercial guest houses and B&Bs.

An option for reform suggested in the Treasury’s call for evidence3 was a proposal to restrict the relief to residential letting only. CIOT and ATT prepared a joint online survey for their members3, as part of their feedback. Responses to the proposal to exclude holiday letting from the relief were split, with 52.6 per cent of respondents agreeing that the relief should remain available for holiday letting, and 47.4 per cent feeling it should be restricted to residential lets only.

John Cullinane, CIOT Tax Policy Director, said:

“There is no clear consensus in the tax profession for restricting the relief depending on the type of letting activity, its purpose or length. While some members want the relief restricted to residential letting only, others want the scope of the relief widened. On balance, rather than introduce further complexity, the survey results suggest that the relief should be left as it is it.”

Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:

“A common theme through the responses was the importance of keeping the relief simple and easy to understand. Since any change is bound to lead to further complexity, we consider that the relief should be retained in its present form.

“The survey did highlight some areas of uncertainty in applying the relief and there is a case for improving the quality of the guidance in some areas.”

John Cullinane added:

“The survey did identify some enthusiasm for the idea of merging rent-a-room relief and the £1,000 property allowance into a single relief for lettings of an individual’s only or main residence.  59 per cent of respondents felt some consideration should be given to this, although since both reliefs are designed to do different things, there would likely be winners and losers from this approach.”

Key findings in the survey include:
·         79 per cent of respondents agreed that existence of rent-a-room provides an incentive to let out rooms or take in a lodger.
·         63 per cent of respondents agreed (or strongly agreed) that rent-a-room relief supports the Government’s objective for a diverse supply of housing options.
·         86 per cent of respondents said that the most common use of the relief was for letting a spare room to a lodger.
·         84 per cent of respondents estimated that between zero and 24 percent of the claims they made for or on behalf of clients related to claims for short term or holiday let accommodation.
·         98 per cent of members felt that the relief should be retained for the letting of spare rooms.
·         48 per cent of respondents were of the opinion that the relief should also be extended to annexes and self-contained flats.
·         71 per cent of members felt that, assuming the relief is retained in its current form, the current £7,500 limit is appropriate.
·         59 per cent of members felt that consideration should be given to merging rent-a-room relief and the £1,000 property allowance into a single relief for lettings of an individual’s only or main residence.

Notes for editors

1.       Rent-a-room relief allows individuals to earn up to £7,500 of tax-free income from letting out furnished accommodation in their main or only residence.  The relief can apply to room let to a single individual for 365 days of the year, or lets of one night each to 365 different individuals.  The relief is separate from the new £1,000 property allowance introduced from April 2017, which applies more generally to any income an individual derives from their interest in a property.  HMRC believe that there has been a 38 per cent increase in claims in the seven years from 2007-8 to 2014-15.

2.       The concern is whether it is reasonable that someone who rents out a room in a more limited fashion for holiday purposes can benefit from a relief which a full time B&B with a number of rooms would not receive the same or any benefit from. The relief applies to gross rental receipts. It applies in full where gross rental receipts are £7,500 or less. Where rental receipts exceed £7,500 as would be expected for a B&B or guest house operating on a commercial basis, the business can opt to calculate its taxable profits either by deducting £7,500 from its gross rental or the actual expenses. In practice, the actual expenses are likely to give a more preferable result so the business pays tax on its actual profits in full with no benefit from the rent-a-room limit. 

On the other hand any restrictions which are introduced will result in the relief being less flexible, more complex, and result in those providing short term accommodation at times of peak demand (e.g. during the Edinburgh Festival, Wimbledon etc) being more likely to have to declare taxable income.

3.       The Government has limited information on the use of the relief as the vast majority of users are not in the self-assessment system. Where an individual is eligible for the relief they are not required to make a claim for it, unless they complete a self-assessment return for another reason. Approximately 50,000 people claim the relief through self-assessment, with a further 200,000-300,000 individuals estimated to be using the relief who are outside the self-assessment system and about whom little is known. The original call to evidence is available here.

The call for evidence was issued to:
•              better understand how the relief is currently used
•              understand whether or not the relief is working as the Government intends
•              help inform any potential reform.

The ATT’s submission to the Treasury can be found here and the CIOT response here.  The full survey results can be found as an appendix to the ATT response. The survey closed on 12 February 2018 and there were 687 responses.  The Treasury is currently processing feedback to the call.

4.       The Association of Taxation Technicians

The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible.

Our members are qualified by examination and practical experience. They commit to the highest standards of professional conduct and ensure that their tax knowledge is constantly kept up to date. Members may be found in private practice, commerce and industry, government and academia.

The Association has over 8,500 members and Fellows together with over 5,600 students. Members and Fellows use the practising title of 'Taxation Technician' or ‘Taxation Technician (Fellow)’ and the designatory letters 'ATT' and 'ATT (Fellow)' respectively.

The Chartered Institute of Taxation

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 18,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@att.org.uk(Out of hours contact: George Crozier, 07740 477 374)

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