Call for renters' tax break

4 November 2009

Terraced house

Shelter is calling for greater tax breaks for householders who rent a room to lodgers, because the tax threshold - the amount a person can receive in income before paying tax - is so low it puts people off from offering a room to potential renters.

The present threshold of £4,250 hasn’t changed since it was set in 1997, despite rent rises of more than 110 per cent since then. But Shelter believes many more homeowners, especially those struggling with mortgage costs, would rent out a room if they didn’t have to worry about tax repercussions.

Shelter director of policy and campaigns Kay Boycott said: 'The current threshold is far too low and is likely to put people off letting out rooms due to the need for completion of a tax return and payment of income tax on the rental income.

'In the current economic climate, many homeowners are battling to meet their mortgage payments and many are looking for options to maximise their income. If the rent-a-room threshold was higher and the scheme better publicised, it could prove a real incentive for people to take in a lodger, and the take up of rent-a-room opportunities could increase.'

Shelter is calling for the threshold to be raised to £9,000 a year to reflect rising rents, which would cost the Treasury around £5 million per annum, plus a publicity drive to ensure greater take up of the scheme.

Ms Boycott added: 'There is a strong case for updating the rent-a-room threshold to reflect rent inflation. This could have the dual benefit of easing the pressures on housing supply by making more efficient use of housing stock, while also supporting those who could benefit from an additional source of income.'

Shelter’s call comes as new figures from Spareroom.co.uk, a website that lists flat and house share opportunities, shows the number of people wanting to rent out a room has risen almost tenfold in the last four years. 

Matt Hutchinson, Director of Spareroom.co.uk, said 'The Rent a Room scheme has proved a vital lifeline for many homeowners but with rent increases over the last decade its value has been slowly eroded over time. With nearly 60% of room rentals in the UK over the threshold this reform can only be beneficial for the housing market.'

Shelter’s call to raise the thresholds are included in a new policy discussion paper Rethinking Housing Taxation which has just been launched.