Are households taking advantage of the government’s Rent a Room scheme, is the scheme working in much the way it was intended when introduced in 1992, and is there any need for the scheme to be reformed?
Since the government has recently launched a consultation exercise on just these questions, Accountancy Age asked their readers what they thought and published some of the feedback on the 14th of March 2018.
The Rent a Room scheme
The scheme was launched to swell the amount of affordable accommodation to rent by giving householders an incentive to let out a small room. This was made by way of a tax allowance – which currently stands at £7,500 a year – on the income earned from such rentals.
The tax-free allowance may include not only the rent you receive but also payments for any related services, such as laundry or meals you have provided.
The scheme does not prescribe any length for the lettings concerned – they may be long-term, medium-term or the kind of short-term lettings which people might when on holiday.
The scheme is available to any “resident landlord” – including both homeowners and tenants (although the latter clearly need the permission of their landlord to sub-let any rooms) – and owners of guesthouses and bed and breakfast accommodation.
To qualify for the tax relief, your lodgers or tenants may occupy a spare room in your home or even a temporarily-created self-contained unit in the property in which you also live.
If you want to take up any such opportunity, you might want to consider the benefits of landlord or lodgers’ insurance. If you are renting someone’s spare room, you might also want to consider protecting your belongings with specialist renters contents insurance.
Householders who have so far taken up the Rent a Room scheme report that they have done so because of the extra cash that may be earned.
In that regard, the existence of a £7,500 tax allowance continues to be an incentive – especially since the amount was increased from the previous £4,250 in April 2016. 71% of the respondents surveyed by Accountancy Age consider the current allowance to be appropriate.
Prospects for reform
The one area which seems to give rise to a degree of concern is the availability of the tax incentive for holiday accommodation as well as residential lettings.
Use of the scheme for short-term holiday lets, particularly at a time when room-sharing apps such as Airbnb are gaining such currency, gives rise to concern in some quarters that this new market may be to the detriment of traditional bed and breakfast and guesthouse accommodation.
It has been suggested, therefore, that restrictions might be introduced to limit the Rent a Room scheme – and its tax advantages – to residential accommodations only. If you own holiday let property, a second home which you let out from time to time, or are a registered Airbnb host, you may find that your access to the current tax allowance is eventually curtailed.
Any such restriction needs to await completion of the government’s current consultations and any decisions made on the basis of those.