The government has quietly shelved plans to introduce a ‘shared occupancy test’ for people renting spare rooms in their homes.
Hidden within the 2018 Budget documents, the government stated it decided not to include legislation for a shared occupancy test in the Finance Bill 2018/19 in order to "maintain the simplicity of the system".
Instead, it said: "The government will retain the existing qualifying test of letting in a main or only residence and will work with stakeholders to ensure that the rules around the relief are clearly understood."
HM Treasury had proposed the shared occupancy test for landlords renting their spare rooms in order to continue qualifying for the annual £7,500 rent-a-room tax relief in the summer.
This would have brought an end to rent-a-room relief for people who rented out a single room in their house while they are absent from the property.
The Association of Accounting Technicians (AAT) campaigned against the proposed test, saying it would add unnecessary complexity to the tax system, have a negligible impact on tax receipts, and would draw thousands of people into the tax self-assessment system.
Phil Hall, head of public affairs and public policy at the Association of Accounting Technicians, said: "HM Treasury has seen sense on this and recognised that the best solution for landlords, tenants, policymakers and the economy was to drop these plans and allow rent-a-room relief to continue as it has for over 25 years as a simple to administer, easy to understand tax relief that’s available to all."
However, the chancellor announced a further tax blow for other landlords.
He said he would reform lettings relief so that it only applies in circumstances where the owner of the property is in shared occupancy with the tenant.
This reform will apply from April 2020 and the final period exemption will also be reduced from 18 months to nine months.
Lettings relief can reduce the capital gains tax on the sale of a property which was at some point used as the taxpayer’s residence but which has since been let out as residential accommodation.