Live-in Landlords: Changes to rent a room relief?

The Chancellor, in the Budget, announced changes to the Rent-a-Room tax relief system. According to the Treasury, “This measure will increase the level of Rent a Room relief, which provides for tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property, from £4,250 to £7,500 per year.

It also increases the level if an individual rents out rooms in a guest house, bed and breakfast or similar, providing that it is their main residence. The increase to the Rent a Room limit will apply from 6 April 2016.”

The changes, which have been dubbed the Airbnb relief, will help landlords who rent out a room in their primary property. However, the Residential Landlord Association believes these changes could be detrimental to some landlords. The RLA argue, “The rent-a-room relief will be increased from £4,250 up to £7,500 from April 2016 onwards. Depending on your method of calculation, this could be of great benefit therefore to those letting a room in their main residence. The personal allowance continues to grow, as does the point at which 40% tax becomes payable, which brings the obvious benefits. This also provides an added benefit to a number of landlords who co-own properties with their spouse in unequal shares. So to summarise, depending on the landlord, this Budget could have detrimental effects to some, whilst be of benefit to others. If you are in any doubt as to how the Budget affects your personal situation, it is strongly advisable to contact a property tax specialist.”

The Association of Residential Landlords believes the Chancellor is attempting to ‘subdue’ the UK’s buy-to-let market because he fears the marketplace could be in an unsustainable boom. The head of ARLA, David Cox argues, “This creates a vicious circle where tenants are renting for longer because the hope of owning a home becomes less achievable.” However, Matt Hutchinson, director, speaking to the Financial Times, argues “in the midst of a housing crisis, and with building levels behind all forecasted targets, it’s vital we make better use of existing stock and this will do just that.” The company estimates that in England alone there are 19 million spare bedrooms owned by homeowners.

Therefore, these changes will affect personal tax circumstances. However, the unused stock of available rooms could offer landlords the opportunity to explore potential within their primary properties as a further revenue stream. The increase in relief will help many landlords who feel hard hit by current changes to the landlord tax system.

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