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According to anecdotal evidence from mortgage broker Lisa Orme on Facebook, the HMRC "Let Property" campaign seems to have gone up a gear.Declaring your rental income, even if you are not making a profit, would assist you in avoiding an HMRC audit/investigation. You should also declare any property sales as these could incur capital gains tax.Property Tribes has been warning landlords of the "Let Property" campaign for the past five years and these warnings are definitely not something to be ignored. The penalties and interest mount up the longer you fail to disclose your income from rental property.SEE ALSO - HMRC "Let Property" campaign extended for 4 years!UP NEXT - Exclusive Results- HMRC Let Property CampaignDON'T MISS - New HMRC "supercomputer" tracks property dataNOW WATCH: Video recording from December 2014
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
HMRC are also looking at Airbnb as well as eBay, Etsy and Uber.
There are 3 useful exemptions for those making a small income, that do not need to be declared.
For savers, in addition to tax free ISAs, there is also the £5000 Starting Rate for Savings Allowance and the £1000 Personal Savings Allowance.
I doubt it'll stay like that for long gary, looking at the rent a room scheme as it is you can see for many reasons why it isn't fit for purpose, currently the option of opt in or out makes it increasingly difficult to find those that are making over the threshold.There are more people with two or more rooms being rented to lodgers, the call for evidence for the rent a room relief showed some 170k people advertise on Airbnb and Spareroom however this is less than 10% of those renting rooms, so how if it remains voluntary will people be promted to pay tax especially as many homeowner's do not class themselves as professionals and are unfamiliar with doing tax returns/self assessments.
I completely disagree with your opinion, but we can each have our own opinions.
As you are someone who has researched lodgers rights I am surprised that you are making such misinformed statements.
The option to opt out of the RARA is for the benefit of claiming expenses. It bears no relevance to those that have an income above the allowance.
From the RARA perspective, there is no limit to the number of rooms/lodgers. Two or more is irrelevant.
It is estimated that 170k people advertise on Airbnb and Spareroom. There isn't, and can't be, any assumption that these all use the RARA. Many of these advertisers are not resident landlords.
I'm not sure where you arrive at a figure of less than 10%. As far as I'm aware there are no statistics for the number of people that use the exemption.
So to address your first statement, opting out of the RARA means that 1. You will record your rental income 2. Any associated expenses on your rax return. I might be wrong.
The initial purpose for the RARA was to allow individuals to earn a tax free sum from letting out furnished accommodation in their main or only residence/a Room. If you earn up to the threshold you are not required to notify HMRC, but as soon as you are above the £7,500 you must do so.
There is no clear defined limit of rooms and how many lodgers you have, however if you have more than 2 lodgers you will be classed as having a HMO, needing in cases a licence, correct me if I'm wrong. If you are issuing an AST then you are a live out landlord and cant benefit from the allowance anyway. Lets say you have a residential mortgage you'd at least need consent to let and i highly doubt thet will allow for 3 lodgers and you becoming an HMO, but lets leave that there.
In 2013 Santander Mortgages found 1.7 million homeowners rented rooms to lodgers. In the last years autumn call for evidence for the RARR/RARA produced the number if 170,000 people using Spareroom, Airbnb and others to let our spare rooms. "the government does not have a definitive estimate of how many of those hosts would have been carrying out similar activities before the emergence of such platforms nor the of the current use of the rent a room relief beyond this population"
In the same findings by Santander 23% of those homeowners renting rooms had 2 rooms, so lets say 391,000 people rent rooms that are.
1. No experienced landlords.
2. Driven by financial lack, needing this form of income to pay the mortgage or bolster their living costs.
3. Have never filled out a tax return
4. Dont know much about this tenure or RARA
Taxes will go unpaid as they have always done so on a mass scale, I've said this before, the sharing economy needs legal framework.
Example. A Homeowner rents 2 rooms at £400 each, so £800 over 6 months makes £9600 and therefore is £2100 over the allowance needing to pay £420. If 391,000 paid thats a lot of money.
The point is Gary there are a lot more people not only not opting into the rent a room scheme but ignoring it and holding onto all the income generated from renting rooms flying below the radar. My humble opinion is the RARA is not fit for purpose until it finds a way to have a handle on how it goes about policing penalties for those avoiding paying but foremost locating them through a system.
I'll presume you have read the consultation as well as the call for evidence, where much of this has already been discussed.
There will be a small minority that choose to evade taxes. That is not unique to the RARA and HMRC are continually improving their methods to detect this. That does not justify increased legislation nor does it suggest the RARA is not fit for purpose. There is also no requirement for the RARA to address other areas of legislation, such as HMOs, ASTs, Lender Requirements, etc. There is already legislation in place for this.
Yes i have read the consultation in full Gary.
You say a small minority?
So given the fact that that there are more homeowners renting rooms outside of these platforms mentioned earlier, and the fact the Gov cannot estimate how many have been carrying out this room rental activity before the emergence of the said platforms and current use of the RARA beyond the 170,000 population. You can confidently assume its a very small proportion. Fair enough.
The RARA is only effective when those who know they should pay tax above the threshold pay.
Again for the most part they do not know.
The discussion now is about the shared occupancy clause bringing in a test element.
You say HMRC are improving their methods to detect what?? Lodgers in properties? How so?
There is no way i can agree that the majority of homeowners renting rooms,
if a tenant of the Local authority or housing association have notified them. If paying a mortgage have consent though one lodger is usually permissible.
Also having insurance to protect the home this usually is not the case as most lenders never know when lodgers are in these properties.
So how is this important. Well granting a tax free allowance to an unregulated area of private renting allows exploitation of the many cracks in the current system. Example. I'm on full benefit in a 4 bed i rent 3 rooms as my kids have flown the nest how will DWP know? I have the same situation on a mortgage how will my lender or the HMRC know. Even the basics of vetting isn't done.
Does it not make sense to find a way to identify those renting rooms in general, its also the reason data is always lacking and the gov are relying on flatsharing sites for information.
The headline of this thread works for landlords that have to be part of a deposit protection scheme or use a letting agency, its far easier to catch these people abusing the system.
Remember Gary there is no redress available, no best practice, no mandatory requirement for an agreement to be signed which any adjudicator would need at minimum.
You said it doesnt matter how much lodgers you have and it clearly does if you become a HMO.
Ok, I'll rise to the bait. I disagree with your opinion but I admire your passion.
The first point to make clear is that most lodgers rent under a licence agreement not a tenancy agreement. A licence agreement is a permission to use and a tenancy agreement is an contract to own for a limited time. These two types of agreement are based in historic law and should not be compared or confused.
In my opinion the majority of people are law abiding and tax payers, as are the majority of landlords. I believe it is fair to assume the same for the majority of lodger landlords.
Also, in my opinion, the most important aspect of the RARA is that it allows people to share their homes without the need for legislation. Even if the exemption was removed but the allowance retained provided a tax return was completed, this would deter many lodger landlords, even though there would be no financial loss. There would simply be less lodger rooms available. HMRC would then have to introduce measures to enforce the completion of a tax return, at a cost, although in most cases there would be no tax due. It is far easier to set a figure, below which no action is required.
HMRC have many avenues to detect lodgers should they wish to use them - Employment address, banking address, DVLA address, Benefits address, Mobile phone address, social media accounts, delivery address, and many more... It is not just a case of excluding a lodger from the electoral role and council tax.
It is my belief and experience that lenders are not concerned with licence agreements. As long as no tenancy has been created there is no risk to their security.
Whatever the number of lodgers in the country (nobody knows), it is a system that, in general, is working well. Any legislation to regulate it would significantly reduce this tenure, with little, or no, revenue. The only result would be to increase the pressure on the SRS or the tenanted PRS.
I would have no objection to a deposit protection scheme, but I haven't taken a deposit in over 20 years. It may deter others.
You are concerned with redress, which I understand. I usually agree to either 2 weeks or 1 month rent in advance. This gives the lodger security for that payment period, albeit short, but better than nothing. My current lodger started on UC, which was paid 1 month in arrears. There is zero security of tenure on this basis.
My last one Gary i promise.
I know most renters renting rooms are renting under a licence agreement. But do you know how many actually issue these? I know why many do not. The details of an excluded tenancy, licence or common law tenancy I understand.
The most important function of the RARA formed in 1992 was to give an incentive to the homeowner/live in landlord that was facing financial difficulties, this audience are not professionals. This intended purpose has shifted as times have changed thus the changes being made to the RARA. I think if the market is structured then this can alleviate pressures cause by the affordable housing shortage, and aid generation rent.
Did you know the last Gov publication regarding renting rooms in your homebis nearly a decade old?
You mentioned Gary that regulation would deter people and as a result less lodger rooms available in my opinion you're correct it would deter those that benefit from freedom to create their own rules of engagement. Mandatory licence agreements should be looked at.
If the Gov has said the have only those they know via self assessments made which mean there are good people out there its still a massive drop in the ocean as there are approx 19 million sparerooms, well according to Spareroom.com.
In most cases tax isn't due but like i keep saying there are more properties with 2 or more spare rooms.
The thinking behind setting the figure below no tax is due i get. The HMRC having avenues of employment address, banking, DVLA... i dont doubt, but this is not solely a HMRC problem the marketplace is in need of a trade body standing for best practice and establishing standards that work in cohesion with HMRC, DWP and other's but you get my drift. But on the surface its sounds like the findings that usually come from vetting/background checks.
I have spoken to lenders Gary and Tenants, a Lodger or multiple Lodgers if not granted consent or in the case of one lodger highlighted to the lender's and insurer's you breach terms and invalidate your cover.
So mandatory requirement of vetting should be replaced instead of Right to rent in my opinion that is glorified immigration control.
This is not a system working well, how can we measure it effectively, it took me months to get some kind of picture of this landscape due to no framework and clear process.
In the absence of rules we create our own.
Gary HMRC calculations of costs for updating information technology systems for the new allowance for property and trading income is £260,000, they know they'll make this back.
In my assessments based on the number they have they state 17.5% of those using the RARA go above the threshold so regardless of what you might think if we apply the number of people percentage to the 170,000 or the 1.7m plus there are millions of pounds still to gain for the tax pot. I have been working in silence Gary since my rights for lodger post and can tell you humbly changes will come.
I pay my tax you pay your tax
the ones who are not will be the landlords who will break the rules
Power to HMRC I say
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
Agreed DL. I like to sleep at night!