Rent-a-Room tax relief could be restricted for short lets

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Tax Relief & Holiday Lettings

The Rent-a-Room scheme is a tax relief designed to encourage homeowners to provide accommodation for lodgers, the theory being that this facilitates flexibility and mobility in the national workforce.

However, HMRC, though they have denied any intended changes, have evidence that the scheme may be being abused by homeowners using online websites such as Airbnb, Spareroom and GumTree to earn extra money from short-term lets, and then claiming the “rent-a-room” tax break.

A single line buried in last week’s budget documentation implies that the Treasury could be considering placing a restriction on these claims by calling for evidence as top how the allowance is used, as it says, to “ensure it is better targeted at longer-term lettings”.

The rent-a-room tax break now allows homeowners to earn up to £7,500 per year tax free when taking in up to 2 lodgers. The figure was increased from £4,250 to its present level in April last year after more than 20 years at the lower level, under successive governments.

Taking in a lodger – where the landlord must reside in the same furnished house and share facilities – does not create a tenancy but a licence to occupy. This avoids giving the occupants housing rights.

It is thought that thousands of homeowners are now taking advantage of the tax break every year by offering short-term lets, taking people in on “mini-breaks”, mainly visitors from abroad, or elsewhere in the UK. In some cases rooms are let for just one night.

While it has recently become government policy to encourage flexibility and maximise the use of the country’s resources, facilitated by the online “sharing economy”, it has had the effect of encouraging the growth of such short-term lets.

This has not only led to abuse of the rent-a-room scheme, but problems with breaches of lease agreements, where the property is long-leasehold, and also with landlords securing a buy-to-let mortgage on a property used solely for short term lets: buy-to-let mortgages are specifically for assured shorthold tenancies.

Restrictions already exist regarding tax breaks for properties that qualify as furnished holiday lettings (FHL), making it a requirement that any qualifying holiday let property must be available for holidaymakers for at least 210 days in a year.

To qualify as a FHL, several other conditions must be met:

• It must be within the UK (England, Wales, Scotland and Northern Ireland
• It must be furnished for normal living.
• The letting of the property must be run as a business, for profit.
• Other requirements concerning length of stay and availability are as set out in the Furnished Holiday Lettings Rules

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Rent-a-Room tax relief could be restricted for short lets | LandlordZONE.

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Landlords fund-raising for the homeless

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We are interested in setting up a charity or alternatively setting up a crowdfunding page, to help the homeless. The idea is that private landlords, who already play a massive and critical role in housing in the UK – housing around 5 million households

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Setting up the Utilities at Your Commercial Properties 

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Utilities Supplies:

Many commercial landlords let their tenants decide on their utility providers with their own meters, telephone lines, and networks. When you’re in control and recharge these products as a service charge, then it’s up to you to get the best deals. Jason Smith from BusinessElectricityPrices.org.uk explains the best practices for both situations, so you can get the lowest prices for your business and avoid common pitfalls.

1. For Landlords Recharging Utilities as Service Costs

In this scenario, it’s up to you to find the best deals in the market and recharge your clients accordingly. For gas, electricity, landlines and water, it’s prudent to use some form of comparison service. Either select one of the online companies or use the talents of a specialised broker.

Finding the lowest prices

Using a broker saves your time hunting down the best deals, as brokers know their markets inside out. They’ll also manage the administration process on your behalf so that your contracts are set up correctly and on time. Each year they’ll check that you’re on the best rates. All brokers receive commissions from the company they recommend, which is not directly charged to you. They should not favour one company over another as the commission rates are similar among all suppliers.

You could undertake the searching yourself, but you’ll never know if you’ve got the lowest price unless you have time on your side. Although there are five or six companies that supply landlines, there are more than 20 different energy and water companies from which you would have to get quotes. Prices also change each day, so a deal you got yesterday may not be available when you call back.

Recharging your tenants

You may believe that utility costs are an easy way to make additional profits for your tenanted properties, but be aware that many of your customers know what the average price should be recharged to them. You should also adhere to the RICS code of practice where applicable. The Institute of Chartered Accountants in England and Wales (ICAEW) has service charge accounting guidelines you can follow. In general, don’t hike the cost too much—or if you do, expect to receive complaints and be prepared to share your reasoning.

2. For Landlords of Tenants Who Have Their Own Meters

Although this at first appears to be easier for the landlord, it can have some disadvantages. On the one hand, it’s entirely up to your tenant what they do. You don’t need to get involved as they select their utility supplier and pay the bill. There’s no recharging required. However, issues come around when you have separate meters for a currently vacant property.

Dealing with a vacant metered property

Once a tenant has vacated the property and settled their contract, the meter(s) are still supplied by the incumbent energy provider. Immediately after the existing tenant moved, you’ll most likely be charged with “out of contract” rates.

These rates can skyrocket by 100% or more, especially on fixed daily charges. So even if everything is switched off, you’ll be paying up to £3 per day depending on the meter type. There aren’t any contracts for smaller businesses without a standing charge.

Therefore, it’s best to have a new contract billed to your own company during the periods where your property is unoccupied with a standard daily standing charge. Alternatively, ask the current supplier if you’re able to take over the contract until you find a new tenant. In both cases, you’ll save money. Your broker can also handle this change for you.

Arranging change of tenancy notifications

In the same vein as setting up an Assured Shorthold Tenancy, when a new tenant moves into your premises, they need to send a change of tenancy notification to the existing supplier. This letter should be sent as soon as possible to ensure the rates applied are competitive, as energy companies tend to invoke higher charges for companies not under contract. You can find change of tenancy templates on each supplier’s website.

By Jason Smith

Jason Smith is an energy expert who has helped businesses increase their energy efficiency for more 10 years. He manages the website Business Electricity Prices, which advises small and medium-sized businesses on reducing their utility bills.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Setting up the Utilities at Your Commercial Properties  | LandlordZONE.

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Freehold title splitting with Unilateral Notice from JV partner?

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Can anyone please help with problem regarding title splitting. I own a freehold property which is an HMO and a decent size plot of land to the rear. At my request, the lender released the land to the rear from the mortgage security so the land to the rear is technically unencumbered and the mortgage is only on the HMO however

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Tax implication on selling part of garden?

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I have one house where I’ve lived for 3 years and 5 months, I am about to move out and let it out. This house has a large garden and has access to main road, I would like to obtain an outline planning permission for this part of garden and then selling the plot off to a builder

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Eviction and return of deposit from inherited tenancy?

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I have the bailiffs booked for a legal eviction at one of my properties on Thursday 30th Nov. I purchased the property in April 17 with the tenant in situ, so I inherited the original tenancy agreement which had gone periodic by then.

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Buy-to-let mortgages for holiday lets breaks lending rules…

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Short-term holiday lets:

Mortgage brokers are being warned that they could be struck off lending panels if they are complicit in providing buy-to-let loans on properties that are being used for holiday lets.

Following recent changes to landlord taxation, there has been a surge in lettings through the holiday let rental market using websites like Airbnb and Gumtree.

The fall in the pound post the Brexit vote is persuading thousands of Britons and foreign visitors to seek short-stay accommodation in the UK. This means that thousands of buy-to-let landlords have been taking advantage of the demand. Research shows that short stay holiday properties can generate double the annual income of a typical residential buy-to-let.

Another incentive for landlords to do holiday lets is it avoid the new tax rules on mortgage interest relief – purchasing a holiday let in an individual’s name can still get full tax relief on mortgage interest.

Most lenders do not allow buy-to-let properties to be used for holiday lets because holiday let mortgages follow a different criteria. They require a change of use and re-financing, and an assured shorthold tenancy is not appropriate.  In addition, landlords may fall foul of their lease conditions where the property is on a long lease.

Andy Elley, head of commercial mortgages at Mortgages for Business, told FTadvisor:

“A number of landlords had been caught out breaching their mortgage terms by using their properties as holiday lets.

“Often, the lender finds out because there has been noise complaint or they’ve checked the holiday letting sites such as AirBNB and Trip Advisor and discovered the property is listed.”

Advisers are being told to make sure that landlords are provided with clear guidance about the terms of a buy-to-let mortgage when they take one out. Otherwise the broker risks being a party to fraud.

A spokesperson for the TSB told FTAdviser:

“We expect the brokers on our panel to behave professionally and with integrity. Knowingly making false representation of an application undermines this and would risk ejection from our panel.”

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Buy-to-let mortgages for holiday lets breaks lending rules… | LandlordZONE.

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M&S Food for Shelter

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Along with 12 other charities our reader Luke would like to point out that Marks and Spencers supports the anti-landlord charity Shelter.

“I’ve just popped out of my office to grab a sandwich from M&S and it would appear that a number of their products (in the sandwich section

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Rental payments could be added to credit scores

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The Creditworthiness Assessment Bill has had its second reading in the House of Lords with a general debate on all aspects of the Bill on the 24th November.

The Bill is now scheduled to go to Committee stage with a line by line examination

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Freehold flat bridge construction?

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I am considering buying a freehold flat and would like some advice please. The flat is purpose built and is approx 7 years old.

It is essentially a bridge construction adjoining a 2 story leasehold building one side and a freehold house the other.

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