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Review and likely overhaul of Rent a Room tax break revealed

Civil servants appear worried that the relief is fuelling growth in Airbnb not encouraging more longer-term rental provision.

Nigel Lewis

Rent a Room

An investigation into the effectiveness of the Rent a Room relief and other tax breaks given to private home owners who take in lodgers has begun eight months after it was revealed by the Chancellor in his 2017 Autumn budget speech.

The Rent a Room relief enables home owners to earn up to £7,500 in rent tax free and was first introduced in 1992. Then, last year, an additional tax-free allowance of £1,000 was introduced for any other income earned from a home.

HMRC and HM Treasury are jointly running the consultation and say they want to understand how many people are using the Rent a Room relief and also the impact it’s having on local private rental property markets.

The original reason for introducing the relief was to increase the supply and variety of low-cost housing in the private sector, but the consultation document suggests civil servants are worried that it has instead fuelled a boom in Airbnb short-term booking by holiday makers and business travellers.

“The government would like to hear views on whether this is an appropriate use of tax relief, or whether the relief should more explicitly support residential accommodation provided on a longer-term basis, or for a certain purpose,” the document says.

Liverpool Victoria research

Concerns over the ‘Airbnb effect’ have been increased by recent research by insurer Liverpool Victoria, which revealed that the number of home owners letting out spare rooms almost doubled between 2009 and 2014.

One option clearly being considered by the government is to restrict Rent a Room relief to residential use only – and exclude short-term holiday and other rental categories, a measure both the Irish and French governments have already introduced.

This would be problematical for short-term rental ‘sharing economy’ websites such as Airbnb and SpareRoom.com which rely heavily on private owners who rent out their homes in order to earn tax-free income.

July 9, 2018

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