Annex 1: Minor changes in the law made by the Act: Change 128: Rent-a-room relief: income other than trading or property income: sections 785, 786, 794 and 798.
This change prevents the receipt of certain Schedule D Case VI income from disqualifying taxpayers from rent-a-room relief (as well as allowing the relief on that income).
Under paragraph 2(1) of Schedule 10 to F(No 2)A 1992 relief is available only if all “relevant sums” deriving from letting accommodation in the taxpayer’s home would otherwise be chargeable under Schedule A or Schedule D Case I.
“Relevant sums” includes sums accruing in respect of meals, cleaning, laundry and goods and services of a similar nature provided in connection with the use of furnished accommodation (paragraphs 2(2) and 8 of Schedule 10 to F(No 2)A 1992). If a taxpayer lets a room and the income is charged under Schedule A, any incidental income for (say) occasional laundry services or meals would normally be chargeable under Schedule D Case VI. The receipt of that income would therefore disqualify the taxpayer from the relief.
This was not the case when F(No 2)A 1992 was enacted. Paragraph 2(1) of Schedule 10 to F(No 2)A 1992 originally referred to Schedule D Cases I and VI. At that time, income from letting furnished accommodation was charged under Schedule D Case VI unless the taxpayer elected for it to be charged under Schedule A (or unless the letting arrangements amounted to a trade as, for example, in the case of a bed and breakfast business).
In amending section 15 of ICTA, FA 1995 brought all lettings of furnished accommodation within the Schedule A charge. FA 1995 replaced the reference to Schedule D Case VI in paragraph 2(1) of Schedule 10 to F(No 2)A 1992 with a reference to Schedule A.
The definition of “rent-a-room receipts” in section 786(1) includes, by virtue of paragraph (d), receipts that would otherwise be chargeable under Chapter 8 of Part 5 of this Act (income not otherwise charged (the successor to Schedule D Case VI for this kind of receipt)). Consequently, those receipts no longer disqualify the taxpayer from the relief. Rent-a-room relief is also available on the receipts.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice.