Make sure you take into account stamp duty if you’re looking to buy a commercial property.

Stamp duty land tax on non-residential properties

Stamp duty land tax (SDLT) is payable in England and Northern Ireland on the purchase of property over a certain price. It applies equally to residential and non-residential properties, although the rates are different. Stamp duty land tax is devolved with land and buildings transaction tax (LBTT) applying in Scotland and land transaction tax (LTT) applying in Wales.

Non-residential property

As the name suggests, non-residential property is property other than that which is used as a residence. This includes commercial property, such as shops and office, agricultural land and forests. The non-residential rates of SDLT also apply where six or more residential properties are brought in a single transaction.

Mixed use properties

The non-residential rates of SDLT also apply to mixed use properties. These are properties which have both residential and non-residential elements. An example of a mixed use property would be a shop with a flat above it.

Rates

SDLT is charged at the appropriate rate on each ‘slice’ of the consideration. No SDLT is payable where the consideration is less than £150,000, or on the first £150,000 of the consideration where it exceeds this amount.

The rates of SDLT applying to non-residential properties are shown in the table below. They also apply to the lease premium where the property is leasehold rather than freehold.

Consideration SDLT rate
Up to £150,000 Zero
The next £100,000 (i.e. the ‘slice’ from £150,001 to £250,000) 2%
Excess over £250,000 5%

Example

ABC Ltd buys a commercial property for £320,000. SDLT of £5,500 is payable, calculated as follows.

On first £150,000 @ 0% £0
On next £100,000 @ 2% £2,000
On remaining £70,000 @ 5% £3,500
Total SDLT payable £5,500

New leasehold sales and transfers

The purchase of a new non-residential or mixed use leasehold property triggers a SDLT liability on the purchase price (the lease premium) and also on the annual rent payable under the lease (the net present value). The two elements are calculated separately and added together.

The lease premium element is calculated using the rates above, while the rent element is payable at the rates in the table below. No SDLT is payable on the rent if the net present value is less than £150,000.

Net present value of the rent SDLT rates
£0 to £150,000 Zero
£150,001 to £5,000,000 1%
Excess over £5,000,000 2%

Existing leases

SDLT is only payable on the lease price where an existing lease is assigned.

SDLT calculator

HMRC have published a handy calculator on the Gov.uk website which can be used to work out the SDLT payable on a commercial transaction. It can be found at www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro.

Scotland and Wales

The rates of LBTT payable on the purchase of non-residential properties in Scotland can be found at www.revenue.scot/land-buildings-transaction-tax/guidance/calculating-tax-rates-and-bands and the rates of LTT payable on the purchase of non-residential properties in Wales can be found at https://gov.wales/land-transaction-tax-rates-and-bands.

Partner note: FA 2003, s. 55, 56.

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If you might want to sell a property cheaply to a family member make sure you read this first.

At first sight, the calculation of a capital gain or loss on the disposal of an asset is relatively straightforward – simply the difference between the amount received for the sale of that asset and the cost of acquiring (and, where relevant) enhancing it, allowing for the incidental costs of acquisition and disposal. However, as with all rules there are exceptions, and particular care needs to be taken when disposing of an asset to other family members.

Spouses and civil partners

The actual consideration, if any, is ignored for transfers of assets between spouses and civil partners. Instead, the consideration is deemed to be that which gives rise to neither a gain nor a loss. The effect of this rule, which is very useful for tax planning purposes, is that the transferee simply assumes the transferors base cost – and the transferor has no capital gain to worry about.

Other connected persons

While the no gain/no loss rules for transfers between spouses and civil partners is useful from a tax perspective, the same cannot be said to be true for market value rule that applies to transfers between connected persons. Where two persons are connected, the actual consideration, if any, is ignored and instead the market value of the asset at the time of the transfer is used to work out any capital gain or loss.

The market value of an asset is the value that asset might reasonably be expected to fetch on sale in the open market.

Who are connected persons?

A person is connected with an individual if that person is:

  • the person’s spouse or civil partner;
  • a relative of the individual;
  • the spouse of civil partner of a relative of the individual;
  • the relative of the individual’s spouse or civil partner;
  • the spouse or civil partner of a relative of the individual’s spouse or civil partner.

For these purposes, a relative is a brother, sister or ancestor or lineal descendant. Fortunately, the term ‘relative’ in this context does not embrace all family relationships and excludes, for example, nephews, nieces, aunts, uncles and cousins (and thus the actual consideration is used in calculating any capital gain).

As noted above, the deemed market value rule does not apply to transfers between spouses and civil partners (to which the no gain/no loss rules applies), but it catches those to children, grandchildren, parents, grandparents, siblings – and also to their spouses and civil partners.

Example 1

Barbara has had a flat for many years which she has let out, while living in the family home. Her granddaughter Sophie has recently graduated and started work and is struggling to get on the property ladder. To help Sophie, Barbara sells the flat to her for £150,000. At the time of the sale it is worth £200,000.

As Barbara and Sophie are connected persons, the market value of £200,000 is used to work out Barbara’s capital gain rather than the actual consideration of £150,000. If she is unaware of this, the gain will be higher than expected (by £14,000 if Barbara basic rate band has been utilised), and Barbara may find that she is short of funds to pay the tax.

This problem may be exacerbated where the asset is gifted – the gain will be calculated by reference to market value, but there will be no actual consideration from which to pay the tax.

Partner note: TCGA 1992, ss. 17, 18, 272, 286.

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SDLT and first-time buyers

Stamp duty land tax (SDLT) is payable where you buy a property in England or Northern Ireland and the amount paid is more than a certain amount. SDLT does not apply in Scotland, where Land and Buildings Transaction Tax (LBTT) applies instead, nor in Wales, where Land Transaction Tax (LTT) is payable.

As far as residential property is concerned, the rates depend on whether a person is a first-time buyer or not and whether the property is a second or subsequent property. The current residential threshold is £125,000. However, a 3% supplement applies to second and subsequent homes where the purchase price is more than £40,000. Relief is available for first time buyers.

First time buyer rates

Since 22 November 2017, first time buyers buying a residential property do not pay any SDLT if the purchase price is less than £300,000. Where the purchase price is between £300,000 and £500,000, first-time buyers pays SDLT at the rate of 5% on the excess over £300,000. First-time buyers buying a property for more than £500,000 do not get any relief – instead they pay the normal residential rates.

Case study 1

Kieran buys his first flat for £200,000. As the consideration is less than £300,000 and he is a first-time buyer, no SDLT is payable.

Without the relief he would have paid SDLT of £1,500.

Case study 2

Orla is a first-time buyer. She buys a two-bedroom cottage costing £420,000. She benefits from first-time buyer relief, paying SDLT at 5% on the excess over £300,000. She must therefore pay SDLT of £6,000 (5% (£420,000 – £300,000)).

Without the relief, she would pay SDLT of £11,000. She saves £5,000 as a result of the relief for first-time buyers.

Case study 3

Connor and Daniel are first time buyers. They buy a flat in London for £700,000.

As the purchase price is more than £500,000, they do not benefit from first-time buyer relief. Consequently, SDLT is calculated at the normal residential rates as follows:

On first £125,000 @ 0% £0
On next £125,000 @ 2% £2,500
On next £450,000 @ 5% £22,500
SDLT payable £25,000

Shared ownership schemes

Changes announced in the 2018 Budget with retrospective effect extended the availability of first-time buyer relief to first-time buyers buying a property through a qualifying shared ownership scheme. Relief is available to the first share purchased as long as the market value of the shared ownership property is less than £500,000. No SDLT is payable where the first-time buyer pays less than £300,000 for their share, with SDLT being payable at the rate of 5% on the excess over £300,000 where their share costs between £300,000 and £500,000.

First-time buyers who purchased a property through a shared ownership scheme between 22 November 2017 and 29 October 2018 who did not benefit from the relief can claim a refund. Where the transaction was completed before 29 October 2018, those affected have until 28 October 2019 to file an amended SDLT return.

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Putting property in joint name – beware a potential SDLT charge

There are a number of scenarios in which a couple may decide to put a property which was previously in sole name into joint names. This may happen when the couple start to live together, get married or enter a civil partnership. Alternatively, it may occur if the couple take advantage of the capital gains tax no gain/no loss rule for spouses and civil partners to transfer ownership of an investment property into joint name prior to sale to reduce the capital gains tax bill.

While most people are aware that stamp duty land tax is payable when they purchase a property, they may be unaware of the potential charge that may arise if they put a property in joint names – it all depends on the value of the consideration, if any.

It should be noted that Land and Buildings Transaction Tax (LBTT) applies to properties in Scotland Land Transaction Tax to properties in Wales.

What counts as consideration?

The problem is that the definition of ‘consideration’ extends to more than just money – it also includes taking over a debt, the release of a debt and the provision of goods, works and services. So, while there may be no transfer of money when a couple put a property in joint names, if they also put the mortgage in joint names, depending on the amount of the mortgage taken on, they may trigger an SDLT charge.

Case study 1

Following their marriage, Lily moves into Karl’s house. They decide to put the property in joint names as well as the mortgage of £200,000. There is no transfer of money, but Lily assumes responsibility for half the mortgage. Lily is a first-time buyer having previously rented.

The valuable consideration is the share of the mortgage taken on by Lily, i.e. £100,000. As this is less than the first-time buyer threshold of £300,000, there is no SDLT to pay.

Case study 2

Anna has several investment properties in her sole name. She is planning on selling a property and expects to realise a chargeable gain of £30,000. As her wife Petra has not used her annual exempt amount, she transfers 50% of the property into Petra’s name to make use of this. There is a £50,000 mortgage on the property, which remains in Anna’s sole name.

There is no valuable consideration and no SDLT to pay.

Case study 3

Following their marriage, Helen moves into her new husband Michael’s home. The property is worth £700,000 and has a mortgage of £400,000. Helen gives Michael £100,000 from the sale of her previous home, which he uses to reduce the mortgage. They then transfer the remaining mortgage of £300,000 into joint name,

Helen had assumed that there would be no SDLT to pay as the £100,000 she had given Michael is less than the SDLT threshold of £125,000. However, the consideration also includes the share of the mortgage taken on of £150,000, so the total consideration is £250,000. As a result, SDLT of £2,500 (on the slice from £125,000 to £250,000 at 2%) is payable.

The whole picture

It is important to look at the whole picture when putting property in joint names – sharing the mortgage may trigger an unexpected SDLT bill.

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What makes a property a residence?

Capital gains tax private residence relief is available where a property is occupied as the taxpayer’s only or main residence. The question of what constitutes ‘occupation as a residence’ was considered recently by the Tribunal, with perhaps surprising results.

Quality not quantity

There is no minimum period of residence that is needed for private residence relief to be in point; rather it is necessary to look at the quality of the occupation. The term ‘residence’ is not defined in the legislation is relation to private residence relief, and thus takes its ordinary everyday meaning, i.e. the place where a person lives – their home.

Need to cook, eat, sleep and do laundry

In Hezi Yechiel TC06829 the Tribunal considered whether the taxpayer occupied the property in question as his main home. He had purchased it 2007 intending to make it a home for himself and his then fiancée. The property required a significant amount of work and planning permission was sought to extend the property. The taxpayer got married in 2008, but the couple separated in early 2011 having never lived in the property. Mr Yechiel moved into the property in April 2011. It was advertised for rent or sale in October 2011 and sold in August 2012. Mr Yechiel moved in with his parents, who lived 15 minutes away, in December 2011.

A builder who had been engaged by Mr Yechiel to work on the property had ‘kitted up’ a bedroom and kitchen. Mr Yechiel slept in the property every night from April 2011 to July 2011 and was present at the property every morning during that period. He brought a bed and a side table for the property. While he used the kitchen for basics, he did not cook there – he mainly ate at his parents, having a takeaway if he ate at the property. His mother did his laundry.

While the Tribunal accepted that Mr Yechiel occupied the property, they found that his occupation lacked the sufficient quality to constitute residence – it did not have the necessary degree of permanence. Mr Yechiels intentions were of importance, and he had no clear plan – he moved into the property as he needed somewhere to live, with the intention of living there for a period of time.

The Tribunal considered not only his intention, but also what he did and did not do in the property. He slept there, but spent a considerable part of the day at his parents’ home. He did not cook at the property and his laundry was done by his mother.

The Tribunal considered ‘that to have a quality of residence, the occupation of the house should constitute not only sleeping, but also periods of ‘’living’’, being cooking, eating a meal sitting down, and generally spending some periods of leisure there’. They found that Mr Yechiel’s occupation lacked sufficient quality to be considered a period of residence, and as such he was not entitled to private residence relief and lettings relief.

The moral of the story

Merely sleeping at a property is not enough to qualify it as a ‘residence’ – you must also do your laundry and cook there to satisfy the Tribunal.

Airbnb-type lets – is rent-a-room relief available?

Many homeowners have taken advantage of sites such as Airbnb to let out a spare room on a temporary basis or their whole property while they are away. In most cases, as long as the associated conditions are met, hosts can enjoy rental income of up to £7,500 tax-free under the rent-a-room scheme. This continues to be the case as planned legislation to restrict the availability of the relief has not been introduced.

Rent-a-room relief

Rent-a-room relief is a relief that allows individuals to earn up to £7,500 per year tax-free from letting out furnished accommodation in their own home. This limit is halved where more than one person benefits from the income such that each person can enjoy rental income of up to £3,750 per year tax free.

The relief is available to owner occupiers and tenants. To qualify, the rental income must relate to the let of furnished accommodation in the individual’s only or main home. While the relief was introduced to boost the supply of cheap residential accommodation, there is no minimum period of let and applies equally to very short lets. Further, the individual can let out as much of their home as they want.

The relief can be used where a room is let furnished to a lodger. It can also be used where the letting amounts to a trade, for example, where the individual runs a guest house or a bed-and-breakfast or provides services such as meals and cleaning.

Where gross rental income is less than £7,500 (or £3,750 where the income is shared), the relief is automatic – there is no need to tell HMRC.

Where the gross rental income exceeds the rent-a-room limit, the individual has a choice of deducting the rent-a-room limit and paying tax on the excess or calculating the profits in the normal way by deducting the actual expenses. Claiming rent-a-room relief will be beneficial if there is a profit and actual expenses are less than the rent-a-room limit. This is done on the tax return.

It is not possible to create a loss by deducting the rent-a-room limit if, for example, rental income is less than the limit – the income is simply treated as being nil. Where deducting actual expenses from rental income produces a loss, it is better not to claim rent-a-room relief to preserve the loss.

Rent-a-room relief cannot be claimed where the accommodation is not in the individual’s main home, where accommodation is provided unfurnished or where a UK home is let out while the owner is working abroad.

Airbnb-type income

Rent-a-room relief is available for Airbnb-type accommodation as long as the conditions are met. The issue is not whether the income is from an Airbnb-type let; rather, whether the conditions for rent-a-room relief are met. This is likely to be the case if the nature of the Airbnb let is such that it comprises the let of a furnished spare room in the taxpayer’s home, or the whole home for a short period, such as a weekend or a couple of weeks when the homeowner is on holiday.

However, where the individual uses Airbnb or similar to let accommodation in a property which is not his or her main home, for example a holiday cottage, rent-a-room relief is not available and the normal property rental rules apply. The individual may, however, benefit from the property income allowance of £1,000.

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Claiming a deduction for pre-letting expenses

For tax purposes, a property rental business begins when the first property is let. However, it is likely that the landlord will have incurred some expenses prior to that date in getting the property ready to let and in finding a tenant and agreeing the let.

Once the letting has commenced, expenses incurred in relation to that let will be deductible in computing the taxable rental profits, as long as the conditions for deductibility are met (i.e. the expenses are incurred wholly and exclusively for the purposes of the rental business and, subject to the cash basis capital expenditure rules, are revenue in nature). It is therefore necessary to distinguish between expenses incurred as part of the letting business and preparatory expenses incurred before the property rental business began.

While no relief is available for preparatory expenses at the time that they are incurred, relief may be available under the special rules for pre-letting expenses once the business has commenced.

Relief for pre-letting expenses

For relief to be available in respect of expenses incurred before the start of the property rental business, the expenditure must meet all of the following conditions:

  • the expenditure is incurred within a period of seven years before the date on which the rental business started
  • the expenditure is not otherwise allowable as a deduction for tax purposes
  • the expenditure would have been allowed as a deduction had it been incurred after the rental business had started

Consequently, to be allowed under the pre-letting expenditure rules, the expenditure must be incurred wholly and exclusively for the purposes of the business and (otherwise than in accordance with the cash basis rules permitting a deduction for capital expenditure) must be revenue in nature.

The type of expenditure which might qualify for relief under the pre-letting expenses rules would include the costs of advertising for a tenant, cleaning the property, tidying up the garden, and suchlike.

Where expenditure qualifies for deduction under the pre-letting expenses rules, the expenditure is treated as if it were incurred on the day on which the property rental business began. In this way, it is deducted from the rental income of the first accounting period of the property rental business.

Example

Teresa buys a house to let out. The property costs £250,000, and the associated costs of the purchase are £4,000. The purchase completes on 28 February 2019.

Teresa arranges for some work to be undertaken on the property prior to letting it out. This comprises painting the property (£2,000) and some minor repairs (£400). She also buys carpets and curtains (£3,000) and arranges for the property to be cleaned (£200) and the garden to be tidied up (£150).

She incurs costs of £400 on advertising for a tenant.

A tenant is found, and the property is let from 1 May 2019.

The property rental business starts on 1 May 2019. Relief is available under the pre-letting rules for the following expenses:

  • repairs and maintenance (decorating and minor repairs): £2,400;
  • cleaning: £200;
  • gardening: £150; and
  • advertising: £400.

These costs are treated as if they were incurred on 1 May 2019 and are deducted from the rental income if the first period of letting.

The cost of property and associated expenses are not allowable (relief will be given on the eventual sale under the capital gains tax rules). Likewise, no relief is available for the initial purchase of the carpets and curtains, although relief will be available if at some future point they are replaced in accordance with the relief for the replacement of domestic items.

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Expenses that landlords can deduct

Landlords must pay tax on any profit from their property rental business (although income from property of less than £1,000 a year can be ignored). In working out the profits, expenses are deducted from rental income. To ensure that the landlord does not pay more tax than is necessary, it is important to deduct all allowable expenses. Remember, the profit calculation is undertaken for the property income business as a whole, not on a property by property basis. Consequently, it does not matter whether the expenses incurred in relation to an individual property exceed the rental income from that property – it is the overall result that matters.

Cash basis

From 6 April 2017, the cash basis is the default basis for eligible landlords. Where accounts are prepared on the cash basis, it is the date that the expenditure was incurred that is the key date.

Allowable expenses

An expense is an allowable expense if it is incurred wholly and exclusively for the purposes of renting out the property.

Common examples of expenses which may be allowable include:

  • repairs and maintenance
  • water rates
  • council tax
  • gas and electricity
  • insurance (e.g. landlords’ buildings and contents insurance)
  • gardening costs
  • cleaning costs
  • letting agents’ fees
  • accountants’ fees
  • rents where the property is sub-let
  • office expenses, such as phone calls, stationery, etc.
  • cost of advertising for new tenants

Interest and other finance costs

Relief is available for interest on a loan up to the value of the property when it was first let. However, the way in which relief is given for interest is changing from relief as a deduction from income to relief as a deduction at the basic rate from the tax that is due.

For 2017/18, relief for 75% of the interest costs is available as a deduction and relief for the remaining 25% as a basic rate tax reduction, for 2018/19, relief for 50% of the interest costs is available as a deduction, with relief for the remaining 50% as a basic rate tax reduction. For 2019/20, only 25% of the interest costs are deductible, with relief for the remaining 75% being given as a basic rate tax reduction. From 2020/21 onwards, relief for all interest costs is given as a basic rate tax reduction.

Vehicles

A deduction for vehicle costs can, from 6 April 2017 onwards, be claimed using the approved mileage rates. This is generally easier than working out the deduction based on actual costs (although this method can be used if preferred). The rates are as follows:

Vehicle Rate
Cars and vans 45p per mile for first 10,000 business miles in the tax year 25p per mile for subsequent miles
Motorcycles 24p per mile

Capital expenditure under the cash basis

Under the cash basis, expenditure for capital items is deductible unless specifically disallowed. Capital items for which a deduction is not allowed include land and cars.

Domestic items

Where the property is let furnished, a deduction is allowed for replacement domestic items, as long as they are of an equivalent standard to the item being replaced. A deduction is not allowed for enhancement expenditure.

Property allowance A property allowance of £1,000 is available. Property income of less than £1,000 does not need to be reported to HMRC. Where income exceeds £1,000, the £1,000 allowance can be deducted instead of deducting actual expenses. This will be beneficial where actual expenses are less than £1,000.

Would you rent out a property as a long-term rental or holiday let?

Where a property is located in a holiday region, a consideration will be whether to let it as a holiday let or on a longer-term basis. As well as differing rental income profiles, there are tax differences to consider.

Furnished holiday lets

From a tax perspective, special rules apply to furnished holiday lets, which provide a number of advantages compared to the tax regime applying to other rental business.

Furnished holiday lettings:

  • benefit from capital gains tax reliefs for traders such as business asset rollover relief, entrepreneurs’ relief, relief for gifts of business assets and relief for loans to traders;
  • benefit from availability of plant and machinery capital allowances for items of furniture, fixtures and fittings; and
  • profits count as earnings for pension purposes.

To benefit from these advantages, any furnished holiday lettings are treated separately from other lets and the profits must be worked out separately for each furnished holiday lettings business.

What counts as a furnished holiday let

The property must be in the UK or the EEA and must be let furnished; the furniture provided must be sufficient for normal occupation and visitors must be able to use the furniture. The property must also be commercially let.

UK and EEA lets are treated as different furnished holiday lettings businesses.

The furnished holiday letting must also pass various tests.

The occupancy tests

There are three occupancy tests and all must be met for the property to be treated as a furnished holiday letting for tax purposes.

The pattern of occupation condition

A let will not count as a furnished holiday letting if the total of all lettings that exceed 31 days is more than 155 days in the tax year.

The availability condition

The property must be available for letting as a furnished holiday accommodation for at least 210 days in the tax year.

The letting condition

The property must be commercially let as furnished holiday accommodation for at least 105 days in the tax year. Longer lets of more than 31 days are excluded, unless the let extends beyond 31 days due to unforeseen circumstances.

If the property fails the letting condition and is not let for 105 days in the tax year, there are two concessionary routes by which the property may still qualify – by making an averaging election or a period of grace election. The elections can be used together.

Averaging election

Where a landlord has more than one property which is let as furnished holiday accommodation, the condition is treated as met where an averaging election is made as long as on average each property is let for at least 105 days in the tax year. So, for example, if a landlord has 4 properties which in total were let on lets of less than 31 days for at least 420 days, the letting conditions is met under an averaging election, even if any individual property is let for less than 105 days.

An averaging election must be made by the anniversary of 31 January following the end of the tax year, i.e. by 31 January 2021 for 2018/19.

Period of grace election

The second way in which the condition can be treated as met is by making a period of grace election where it can be shown that there was a genuine intention to let the property, but this did not happen due to unforeseen circumstances. The letting condition must have been met in the year before that for which the first period of grace election is made. A second period of grace election is permitted, but if a property does not meet the letting threshold in the fourth year after two consecutive period of grace elections, it will no longer qualify as a furnished holiday letting.

Losses

Losses can now only be carried forward and set against profits from the same furnished holiday lets business.

If the property does not qualify as a furnished holiday let, the normal tax rules for rental businesses apply.

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Rent-a-room: Can you benefit?

Rent-a-room relief was introduced to encourage people to let spare rooms in their own home in order to increase the supply of low-cost rental accommodation. In return, the recipient is able to earn up to £7,500 a year tax-free.

Plans to restrict the relief so that it was only available where the occupation by the tenant overlapped with that of the landlord for at least one night have been abandoned – meaning that it is still possible to benefit from the relief for Airbnb-type lets where the property may be rented out for a short time in the landlord’s absence. It can also be used by those running a bed-and-breakfast.

Qualifying accommodation

To qualify the accommodation must be let furnished in the landlord’s home – it does not matter whether the home is owned or rented (but where rented, check that sub-letting is permitted). Where more than one person benefits from the income, the tax-free limit is halved, regardless of how many people share the income.

The relief

Rental income up to the rent-a-room limit is tax-free and does not need to be reported to HMRC. Where the rental income is more, the landlord has a choice:

  • work out rental profit in the usual way by deducting expenses from the rental income;
  • deduct the rent-a-room limit from the rental income and pay tax on the difference.

Using the rent-a-room limit will be beneficial where this is more than actual expenses. Where this route is taken, the relief should be claimed on the self-assessment tax return by ticking the appropriate box.

Case study 1

John is single and has a two-bedroom house. He lets out his spare room for £400 a month. He qualifies for rent-a-room relief. As his rental income of £4,800 is less than the rent-a-room limit, he does not need to declare it to HMRC.

Case study 2

Rob and Fiona are keen hikers and go away each weekend in the summer. They let out their Brighton flat via Airbnb while they are away. In 2018/19 they earned rental income £6,000, which they shared equally.

Rob and Fiona share the income and each have a rent-a-room limit of £3,750. As the rental income from letting out the flat (£3,000 each) is less than their rent-a-room limit, they are eligible for rent-a-room relief and do not need to report the income to HMRC.

Case study 3

Julie runs a B and B in Cheltenham. In 2018/19, she receives rental income of £12,000. Her expenses are £3,000.

As her rental income is more than £7,500 she must report it to HMRC. However, she can still benefit from rent-a-room relief by opting to work out her profit by deducting the rent-a-room limit of £7,500 rather than actual costs of £3,000. Thus, her taxable profit is only £4,500, rather than £9,000 (which would be the profit in the absence of rent-a-room relief). By claiming the relief, she will save tax of £900 if she is a basic rate taxpayer and tax of £1,800 if she is a higher rate taxpayer.

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