Homeowners who rent out their properties for short periods via online sites such as Airbnb may no longer be able to earn £7,500 a year tax-free, if Government proposals are given the go-ahead.
Under the current 'Rent a Room' system, you don't have to pay tax on the first £7,500 earned each year from renting out a furnished room in your home. The tax break applies to those who take in a long-term lodger and those renting to short-term guests, plus those running a B&B or guest house.
But in today's Spring Budget it was revealed that the Government is to consult on proposals to "redesign" the scheme "to ensure it is better targeted to support longer-term lettings".
The Budget policy paper added: "This will align the [Rent a Room] relief more closely with its intended purpose, to increase supply of affordable long-term lodgings".
Check out our Airbnb Room Renting Tips for info on how you can make £10,000s from letting your home or spare room temporarily.
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How will the Rent a Room scheme change?
The plans to overhaul the scheme are at a very early stage – a consultation on whether the scheme should be restricted to longer-term lets is scheduled to be launched this summer, but no further details have been published at this stage.
A Treasury spokesperson told MoneySavingExpert.com that the Government had seen an increase in the number of short-term rentals and that the Rent a Room tax break "wasn't meant for that".
However, the spokesperson added that there could be "exceptions to the restrictions" on who can use the scheme – for example, those who rent out their property to out-of-town workers from Monday to Friday might still be allowed to access it.
How does Rent a Room relief work now?
You don't pay tax on the first £7,500 you make each year from renting out a room. (This threshold is halved if you share the income with a partner or someone else.)
If your income's below this threshold, you don't need to do anything, as the tax exemption is automatic. If it's higher, you must complete a tax return – you then opt in to the scheme and pay tax on the remaining amount. For more info, see Rent a Room help.