Annex 1: Minor changes in the law made by the Act: Change 129: Rent-a-room relief: making the United Kingdom location condition explicit and a potential disqualification from the relief: sections 785 and 786
This change makes it explicit that rent-a-room relief applies only to United Kingdom property and removes a bar to the relief that can arise in respect of a let United Kingdom residence if, exceptionally, an individual also lets an overseas residence.
Paragraph 2(1) of Schedule 10 to F(No 2)A 1992 provides that an individual qualifies for relief for a tax year if all sums which accrue to the individual for the year from letting a room in a qualifying residence, or from providing associated goods or services, would otherwise be chargeable under Schedule A or Schedule D Case I.
Paragraph 4 of Schedule 10 to F(No 2)A 1992 provides that a residence is an individual’s “qualifying residence”, in respect of a tax year, if at some time during the period specified in that paragraph it is the individual’s only or main residence. In rewriting that provision, section 786(1)(a) makes it explicit that the residence must be in the United Kingdom.
For an individual who has only a single qualifying residence in respect of a tax year the requirement is implicit in paragraph 2(1) of Schedule 10 to F(No 2)A 1992. If the residence is overseas the individual could not qualify for rent-a-room relief because any income from letting a room in the residence would be chargeable to tax under Schedule D Case V (as profits of an overseas property business or, exceptionally, income of a foreign trade).
That contrasts with the case of an individual who in a tax year lets a room in a qualifying United Kingdom residence and in a qualifying overseas residence. This case arises only if the individual’s only or main residence changes during the period specified in paragraph 4 of Schedule 10 to F(No 2)A 1992.
Under paragraph 2(1) of Schedule 10 to F(No 2)A 1992, any income from letting a room in the overseas residence which is chargeable under Schedule D Case V would disqualify the individual from any rent-a-room relief at all (and which would otherwise have been available on income from the United Kingdom residence).
Relief will continue not to be available on income from an overseas residence. But the income relating to the overseas residence will no longer disqualify the individual from obtaining rent-a-room relief on income from the United Kingdom residence at the time of the change of residence.
This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.