TAX RELIEF FOR LETTING A ROOM IN YOUR HOME

Transcription

1 7 December 2011 Taxation of Pension Schemes TAX RELIEF FOR LETTING A ROOM IN YOUR HOME A Response Document Issued by: 2 nd Floor Government Office Buck s Road Douglas IM1 3TX

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3 Contents Page 1 Introduction 1 2 Responses 1 3 Conclusions 3 Issue Date: 7 December 2011

4 TAX RELIEF FOR LETTING A ROOM IN YOUR HOME Response Document 1 Introduction In September 2011 the issued a consultation, Tax relief for letting a room in your home ; which set out a potential system and sought views on it. Thirteen responses were received. This document provides a summary of the comments received and the Treasury s response. Treasury wishes to thank those who took part in the consultation. 2 Responses The purpose of the scheme The introduction of the scheme provides added complexity to the tax system contrary to Treasury s previously published Taxation Strategy commitment to simplify it It would be a good move to bring the Isle of Man in line with the United Kingdom scheme Given the level of rents payable in respect of private sector properties the scheme would enable people to obtain accommodation they can actually afford, provide the opportunity for them to save towards mortgage deposits whilst giving additional income to the providers in times of increased living costs The scheme may simply legitimise what people are doing already in that they are probably not declaring such income to the Assessor presently The scheme may encourage householders in need of additional income to let rooms providing suitable accommodation for single people struggling to afford accommodation which would improve the utilisation of the island s current housing stock High levels of expectation from those people needing accommodation may find the idea of lodgings as an unsatisfactory housing option People who are most in need of assistance will fall below the tax threshold anyway irrespective of any lodging income they receive and therefore would not benefit. However. those in receipt of more substantial incomes will do so. The general principle that income related state benefits are a more cost effective means of ensuring specific groups on low incomes receive targeted support should be noted Issue Date: 7 December 2011 Page 1

5 In the present financial climate Treasury should not be seeking to extend tax relief thereby reducing Government income The scheme would cost money with no apparent benefit. If someone needs extra income the tax implications will not stop them renting out a room Government should be looking to have a tax system to offer tax incentives for business investment instead Tax-free income limits The proposed tax-free annual income limit of up to 1,500 for an individual and 3,000 for a married couple or civil partners who are jointly assessed is considered to be very low. The UK equivalent limit is 2,125 for an individual letting jointly or 4,250 for an individual letting solely, whilst the limit in Ireland is 10,000 Euros The proposed limit equates to the a tax free amount of per week for an individual whereas it is felt that the current market charge ranges from 30 to 80 per week dependent on factors such as the provision of meals, etc. The limits could be applied in line with those currently in place in respect of the Isle of Man Homestay Scheme for the TT period Household bills and mortgage costs for a similarly priced property would be higher for an individual than a married person or civil partners based on a per person basis. Therefore a single person should be entitled to a higher tax free limit or the limit should be available per household The same tax free limits should be applied to all joint homeowners irrespective of their marital status. Therefore an unmarried couple, siblings or friends living together should each be entitled to the tax-free limit of 1,500 Consideration should be given to multiples of the tax-free limit where the individual or couple has several rooms available to let and is therefore able to accommodate several lodgers Proposed rules The definition of the only or family home of the individual or couple letting the accommodation may give rise to difficulties where they spend large amounts of time in more than one property The proposed requirement for the letting individual or couple to live in the property at the same time as the individual introduces additional complexity to the scheme The UK requirement is that the property in question is the letting individual or couples only or main residence for all or part of the tax year. It is suggested that the relief could apply to only one property at any time Issue Date: 7 December 2011 Page 2

6 Exclusions Whilst there was no concern in respect of relief in respect of private dwellings it should not apply in the case of public sector accommodation. These tenancies are subsidised by the Government and designed for those who are in most need and on lower incomes The proposal not to grant relief in the case of both privately rented and public sector accommodation was welcomed Any possible issues surrounding tenancy agreements or home insurance should be the only barriers preventing individuals or couples living in either privately rented and public sector accommodation from being allowed relief Additional issues Various concerns were raised that the proposals could give rise to people living in accommodation construed as being statutorily overcrowded contrary to the Housing Acts or living in conditions that are unfit for occupation By encouraging the sharing of homes it could place some householders at risk from their lodger or vice versa. It could be argued that this risk exists currently 3 Conclusion Treasury has concluded that it is not appropriate at present to introduce tax relief for letting a room in a person s home. Issue Date: 7 December 2011 Page 3