Fair tax deal for homeowners renting out rooms!

The rent-a-room tax allowance for lodgers should be increased to help homeowners meet their mortgage payments and to increase the supply of rooms to rent

Renting out rooms helps homeowners and those in need of a home. For most struggling homeowners, it is the biggest single step they can take to avoid defaulting on their mortgage and being repossessed. For many more, it is the only way they can make ends meet and pay the monthly bills. Renting out rooms also obviously provides a home for those in need of it, helping ease the housing shortage and preventing rents from rising so fast.

However, homeowners are getting an increasingly raw deal from the Treasury if they rent out a room. It used to be that most homeowners didn’t have to worry about the taxman, but now the majority are being ensnared by Her Majesty’s Revenue and Customs.

Since 1997 – for a decade and a half – the government has frozen the threshold of the Rent a Room scheme, under which homeowners don’t have to pay tax on rents under £4,250 a year. This means that in real terms, the threshold has dropped by nearly 50%. If the government had just kept in line with inflation, it would have increased the threshold to £6350.

That means that most homeowners now get hit by the taxman. According to spareroom.co.uk website:

  • Across the UK, almost 60% of rooms have an annual rent above the Rent A Room threshold
  • In London, 91% of rooms have rent above the threshold

This means that most homeowners have to declare their lodger’s rent to the government, fill out a tax form, and pay income tax on it of as much as 45% – or simply rent out their room illegally. This puts many homeowners off renting out rooms.

Spareroom.co.uk and the housing charity Shelter joined forces for a campaign on this, dubbed Raise the Roof

The HomeOwners Alliance supports this campaign, and urges the government to double the threshold to £9,000 a year – and then commit itself to keep increasing the threshold in line with rents.

Have you had tax problems with renting out rooms? If so we would like to hear from you – please email us in confidence at hello@hoa.org.uk

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