The government intends to introduce a new ‘shared occupancy clause’ which will require the individual to be resident in the property and physically present for at least some part of the letting period, rather than allowing the whole building to be used.
This will prevent those letting out whole properties from receiving higher levels of income, which the government considers to be more appropriate to treat under the normal rules for taxing property income.
Currently ‘rent a room’ relief allows individuals to earn up to £7,500 tax free from letting out furnished accommodation in their main or only residence. The original intention of the scheme was to increase the quantity and variety of low-cost rented housing, giving more choice to tenants and making it easier for people to move around the country for work.
However, since it was first introduced in 1992, the private rented sector (PRS) has more than doubled in size and the emergence of online letting platforms has made it easier for those with spare accommodation to access a global network of potential occupants.
The government opened the investigation to find out more about the use of the relief, establish whether it is working as the government intends and to help inform any potential reform of the scheme.
A statement by the HM Treasury said: “Generally, those letting out spare rooms are doing so in order to generate small amounts of additional income, and do not see the activity as their main source of income.
“Those letting out whole properties will typically receive higher levels of income, let those properties out for a longer period of time, and may often operate more like commercial landlords. In those circumstances, the government considers it more appropriate to treat such activity under the normal rules for taxing property income.”