I live in Wimbledon and normally love watching the tennis each summer, being able to beat the queue for tickets on the day. Next year, though, I have decided to forgo the strawberries and cream to go on holiday with my family during the tournament. We have been looking into our options for letting our house for the duration, but want to make sure the income from the rental is taxed correctly. What do we need to consider?
Nick Latimer, partner at tax adviser Crowe, says Rent-a-Room relief may apply to the income generated. Under the scheme, if income arises from providing furnished accommodation in a taxpayer’s only, or main, residence, there is no tax liability if the gross rental income is less than £7,500 per annum. If it is more, £7,500 of the receipt is exempt.
Gross receipts in this case also include payments for the provision of other services, such as cleaning and laundry, in connection with the letting. The limit is halved to £3,750 if another person is entitled to the income; for example, a joint owner, such as a spouse, who also occupies the property as their main residence.
Where income is below the limit, relief under Rent-a-Room is automatic, although it is possible to opt out. If an election is made not to use Rent-a-Room, the taxable “profit” is calculated as income received, minus expenses paid wholly and exclusively for the rental business. This includes the costs of running the house during your holiday, such as a share of council tax, water bills and electricity bills.
Conversely, where income exceeds the limit, an election for Rent-a-Room must be made in a self-assessment tax return to override these taxable profit rules. Rent-a-Room is likely to be most beneficial for a short period where gross rental income is high in comparison to costs.
When the £1,000 annual property allowance was introduced in April 2017 — designed to exempt income from occasional land letting, including things such as a driveway for parking at Wimbledon — HM Revenue & Customs considered restricting Rent-a-Room relief where a property wasn’t occupied as a residence by the owner at the same time as the lodger, such as during the Wimbledon fortnight. However, no changes were made in this area. HMRC’s view in Property Income Manual, section 4015, confirms that relief should still be due as long as the property remains your main residence while on holiday.
Where Rent-a-Room relief applies during a rental period, there should be no restriction on the availability of main residence relief for capital gains tax purposes when you sell the property.
Note that the £1,000 property allowance is not available on top of Rent-a-Room relief, but it could be used to reduce taxable income if, for example, the driveway was independently let to Wimbledon visitors.
Where rental income remains taxable following reliefs, the profits will be taxed at your marginal rate: 20 per cent in the basic rate band, 40 per cent for higher-rate taxpayers, or 45 per cent where income exceeds £125,140. Any rental income within your personal allowance, if you are entitled to one, will be tax-free.
You may need to complete a self-assessment tax return due to your rental income. The introduction of Making Tax Digital will bring individual taxpayers into quarterly reporting of rental and self-employment income where combined gross income exceeds £50,000 in 2026-27, £30,000 in 2027-28 and £20,000 in 2028-29. Whether this will put people off renting their properties during the Wimbledon fortnight in the years to come is yet to be seen.
With no will, how can we prove what our late uncle intended?
My uncle recently passed away and after we heard the news, my family and I learned that he had not made a valid will. Since he did not have children, my uncle appeared to want me, his niece, and my brother, his nephew, to inherit his house, while the rest of his estate went to other family members or was left to charity. Frustratingly, this was only communicated to us over email and verbally, so we aren’t sure of its legal validity.
He was previously married and shortly after his death, his ex-wife contacted our family, claiming my uncle had promised his house to her. Could his ex-wife could launch a legal challenge? Can my brother and I prove that our uncle wanted us to inherit the house? What evidence do we need?
Samara Dutton, partner at law firm Collyer Bristow, says when it comes to inheritance, the proverbial “line” must be drawn somewhere and in England the formalities required for validity are found in the Wills Act 1837. This confirms that a will must be in writing and that the testator — your uncle in this case — must sign or acknowledge their will in the presence of two independent witnesses, who must also sign in the presence of the testator. Neither your uncle’s verbally expressed wishes nor emails will comply with these formalities and therefore cannot take effect as a legally enforceable will.
In the absence of a valid will, your uncle’s money and assets will pass according to the rules of intestacy. The application of those rules depends on the specific make-up of your family, but the only scenario in which you and your brother inherit the entire estate is if, first, both of your grandparents (your uncle’s parents) are dead; second, your uncle has no other surviving siblings, nieces or nephews or third, your parent, who was his sibling has also died (otherwise your parent will inherit in priority to you).
This will only be the case if your uncle was legally divorced at the time of his death. If the decree absolute was not issued by the date of his death, his wife would inherit his entire estate. In the absence of children, a spouse scoops the pool on intestacy, irrespective of their actual relationship with the deceased at the time.
A divorcee, however, receives nothing so, if they were formally divorced, his ex-wife will need to prove her asserted entitlement to the house (assuming she is not already a registered co-owner). There are circumstances in which the courts will enforce promises to give specific property to individuals, so it is possible she could launch a claim for this.
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She will need to demonstrate that your uncle made the promises, that it was reasonable for her to rely on those promises and that she relied on them to her detriment. She must have suffered some loss because of her reliance on your uncle’s promises that makes it unconscionable for your uncle to have resiled from them.
To defend her claim, any evidence which undermines the plausibility of the promises she says he made will be helpful, such as emails, text messages and witness accounts of his intentions to leave the property to you will be relevant in this respect. Do also search for his divorce papers. Usually, there is a financial order agreeing the division of assets and often these are made on a “clean break” basis. If the promises she relies on predate that order, it is unlikely her claim for the house would get off the ground.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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