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03 December 2001
Rent-a-flat relief?
Rent-a-flat relief?
Mr and Mrs A have recently purchased a property as their principal main residence. The house is situated in approximately three acres of ground, all of which are for the natural enjoyment of the property. Adjacent to the house is a large garage, capable of housing four or five cars. It is the only garage for the main residence. Over the top of the garage is a flat that is furnished and has its own water and power supply. The property is being rented out at an annual rent of £5,000 per annum, and we have been considering whether or not relief could be claimed under the rent-a-room scheme, and thus only the excess of £750 charged to tax.
In this day and age, a garage is as much an integral part of a private dwelling as is any other room, and planning permission for a house of this size would never have been granted, had it not included the garage and as such it is an essential part of the main residence.
Is it possible to claim rent-a-room relief in this case?
(Query T15,923) – Lucky Landlords.
The essential question to address in this case is whether the garage with the flat above it forms part of the residence of the taxpayers. If it does, then we know that it is a qualifying residence and so will be entitled to the relief as the facts state that the dwelling house is occupied as the taxpayers' main residence. The definition of 'residence' is to be found in paragraph 7 of Schedule 10 to the Finance Act (No 2) 1992 and is 'a building, or part of a building occupied or intended to be occupied as a separate residence'.
The Interpretation Act 1978 states that in any Act, unless the contrary intention appears, words in the singular include the plural and words in the plural include the singular: see section 6. There is nothing within paragraph 7 which indicates that 'a building' should not include the plural 'buildings' and so the fact that the garage is a separate building from the main residence does not prevent it from being treated as part of the residence.
The provisions on rent-a-room relief at paragraphs 373 to 409 of IR 150 provide no further guidance on what constitutes a residence of an individual. However, case law on the meaning of a 'dwelling house' for the purposes of section 222, Taxation of Chargeable Gains Act 1992 is helpful in this respect as the cases examine what the residence of the taxpayers are and determine that in each case it will be a question of fact. It is settled law that a building which is separate from the dwelling house may form part of the residence of the main building: Longson v Baker [2000] STC (SCD) 244. In that case it was accepted that outbuildings and stables could, and did, form part of the main residence. It is implicit from the judgment of Lord Justice Balcombe in Lewis v Lady Rook [1992] STC 171 that a residence is made up of a dwelling house and other buildings. In the earlier case of Batey v Wakefield 55 TC 550, Lord Justice Fox stated that a dwelling house or residence could comprise several buildings and gave the example of a garage as being part of the dwelling house.
It is, as already stated, a question of fact as to what constitutes the residence of the taxpayers. On the present facts it is my opinion that the garage does form part of the residence, it being a building that is part of the entity of the main dwelling (the facts given are that planning permission would never have been granted for the house had it not included the garage). As such the taxpayers are entitled to rent-a-room relief on the flat above it, with the result that only the excess of £750 will be charged to tax. – Groundsman.
Rent-a-room relief applies to income from providing furnished rental accommodation in a taxpayer's own home.
Looking at the Revenue's Property Income Manual, paragraph 4004 dealing with the technical details behind rent-a-room relief where a building is divided into separate residences defines 'Residence' as per the above Schedule 10(7) as meaning 'a building, or part of a building, occupied or intended to be occupied as a separate residence …'. It then adds 'The question that is likely to arise is whether some part of a house … is part of the taxpayer's residence or is a separate residence'. It goes on to cover other relevant facts in this case: 'Where an individual lets furnished accommodation in a self-contained flat in the individual's only or main residence, he or she is eligible for rent-a-room relief provided he or she is a qualifying individual, and the division of the residence into a self-contained unit is only temporary'. One of the points raised in identifying this temporary division, and therefore in this case the ineligibility, is 'Does it have its own separate entry?'.
Paragraph 4000 sums up the current position as we have been advised: 'Rent-a-room can only apply if the accommodation is part of the taxpayer's only or main residence at some time in the basis period' and 'Therefore, there can be no rent-a-room relief where the property ceased to be used as the taxpayer's accommodation before the letting began (or commenced to be used as the taxpayer's accommodation after the letting ceased), even if that is in the same year of assessment'.
'Lucky Landlords' states that the garage and flat (not a single room) are adjacent to the house, which I have taken to mean that there is no physical connection. From the information provided, it would appear that Mr and Mrs A have never used the flat as part of their main residence. This immediately brings into question whether the flat would be treated as part of the taxpayer's own home for rent-a-room relief purposes. I think not, as it is independent from the house and obviously self-contained with, I assume, entry to the flat not via the main house. Therefore, although it may well be part of the main residence for principal private residence relief (section 222, Taxation of Chargeable Gains Act 1992), it does not appear to qualify for rent-a-room relief (section 59 of, and Schedule 10 to, the Finance (No 2) Act 1992). – N.K.
Extract from reply by 'TC AT':
Is the property in 'Lucky Landlords' case temporarily divided (see paragraph 7 of Schedule 10 to the Finance (No 2) Act 1992)? The answer to this question is obviously one of fact. The fact that the division is temporary is supported by the following facts:
* The garage forms part of the main dwelling.
* There is only one owner for council tax purposes.
* The garage/flat is insured by the main property owner.
* There is no separate entry at the Land Registry, i.e. the 'flat' cannot be transferred to new owners.
* The flat could resort to being part of the main residence again without undue 'alterations', i.e. it could resort to being a room above a garage.
* Planning permission for a separate residence has not been obtained, indicating that the division is not intended to be permanent.
* The garage/flat does not have its own unique postal address.
Factors which dispute that the division is temporary include the facts that there is a separate entrance and metered supplies.
The Inland Revenue Property Income Manual at paragraph PIM4004 states that in disputed cases photographs will be essential and personal inspection of the premises desirable. Presumably 'Lucky Landlords', given this opportunity, should be able to show that the garage is indeed an integral part of the property.
Editorial note. The eleven replies received were equally divided in their views, with one not expressly deciding one way or the other. Those who thought that no relief would be due placed emphasis on the 'temporary division' requirement in the legislation and also on the passage from the Revenue's manual. However, the 'temporary division' test applies only where the division has brought about separate residences and, as 'Groundsman' points out, case law leads to the conclusion that, depending on the full facts, separate residences may have not been created here.
Mr and Mrs A have recently purchased a property as their principal main residence. The house is situated in approximately three acres of ground, all of which are for the natural enjoyment of the property. Adjacent to the house is a large garage, capable of housing four or five cars. It is the only garage for the main residence. Over the top of the garage is a flat that is furnished and has its own water and power supply. The property is being rented out at an annual rent of £5,000 per annum, and we have been considering whether or not relief could be claimed under the rent-a-room scheme, and thus only the excess of £750 charged to tax.
In this day and age, a garage is as much an integral part of a private dwelling as is any other room, and planning permission for a house of this size would never have been granted, had it not included the garage and as such it is an essential part of the main residence.
Is it possible to claim rent-a-room relief in this case?
(Query T15,923) – Lucky Landlords.
The essential question to address in this case is whether the garage with the flat above it forms part of the residence of the taxpayers. If it does, then we know that it is a qualifying residence and so will be entitled to the relief as the facts state that the dwelling house is occupied as the taxpayers' main residence. The definition of 'residence' is to be found in paragraph 7 of Schedule 10 to the Finance Act (No 2) 1992 and is 'a building, or part of a building occupied or intended to be occupied as a separate residence'.
The Interpretation Act 1978 states that in any Act, unless the contrary intention appears, words in the singular include the plural and words in the plural include the singular: see section 6. There is nothing within paragraph 7 which indicates that 'a building' should not include the plural 'buildings' and so the fact that the garage is a separate building from the main residence does not prevent it from being treated as part of the residence.
The provisions on rent-a-room relief at paragraphs 373 to 409 of IR 150 provide no further guidance on what constitutes a residence of an individual. However, case law on the meaning of a 'dwelling house' for the purposes of section 222, Taxation of Chargeable Gains Act 1992 is helpful in this respect as the cases examine what the residence of the taxpayers are and determine that in each case it will be a question of fact. It is settled law that a building which is separate from the dwelling house may form part of the residence of the main building: Longson v Baker [2000] STC (SCD) 244. In that case it was accepted that outbuildings and stables could, and did, form part of the main residence. It is implicit from the judgment of Lord Justice Balcombe in Lewis v Lady Rook [1992] STC 171 that a residence is made up of a dwelling house and other buildings. In the earlier case of Batey v Wakefield 55 TC 550, Lord Justice Fox stated that a dwelling house or residence could comprise several buildings and gave the example of a garage as being part of the dwelling house.
It is, as already stated, a question of fact as to what constitutes the residence of the taxpayers. On the present facts it is my opinion that the garage does form part of the residence, it being a building that is part of the entity of the main dwelling (the facts given are that planning permission would never have been granted for the house had it not included the garage). As such the taxpayers are entitled to rent-a-room relief on the flat above it, with the result that only the excess of £750 will be charged to tax. – Groundsman.
Rent-a-room relief applies to income from providing furnished rental accommodation in a taxpayer's own home.
Looking at the Revenue's Property Income Manual, paragraph 4004 dealing with the technical details behind rent-a-room relief where a building is divided into separate residences defines 'Residence' as per the above Schedule 10(7) as meaning 'a building, or part of a building, occupied or intended to be occupied as a separate residence …'. It then adds 'The question that is likely to arise is whether some part of a house … is part of the taxpayer's residence or is a separate residence'. It goes on to cover other relevant facts in this case: 'Where an individual lets furnished accommodation in a self-contained flat in the individual's only or main residence, he or she is eligible for rent-a-room relief provided he or she is a qualifying individual, and the division of the residence into a self-contained unit is only temporary'. One of the points raised in identifying this temporary division, and therefore in this case the ineligibility, is 'Does it have its own separate entry?'.
Paragraph 4000 sums up the current position as we have been advised: 'Rent-a-room can only apply if the accommodation is part of the taxpayer's only or main residence at some time in the basis period' and 'Therefore, there can be no rent-a-room relief where the property ceased to be used as the taxpayer's accommodation before the letting began (or commenced to be used as the taxpayer's accommodation after the letting ceased), even if that is in the same year of assessment'.
'Lucky Landlords' states that the garage and flat (not a single room) are adjacent to the house, which I have taken to mean that there is no physical connection. From the information provided, it would appear that Mr and Mrs A have never used the flat as part of their main residence. This immediately brings into question whether the flat would be treated as part of the taxpayer's own home for rent-a-room relief purposes. I think not, as it is independent from the house and obviously self-contained with, I assume, entry to the flat not via the main house. Therefore, although it may well be part of the main residence for principal private residence relief (section 222, Taxation of Chargeable Gains Act 1992), it does not appear to qualify for rent-a-room relief (section 59 of, and Schedule 10 to, the Finance (No 2) Act 1992). – N.K.
Extract from reply by 'TC AT':
Is the property in 'Lucky Landlords' case temporarily divided (see paragraph 7 of Schedule 10 to the Finance (No 2) Act 1992)? The answer to this question is obviously one of fact. The fact that the division is temporary is supported by the following facts:
* The garage forms part of the main dwelling.
* There is only one owner for council tax purposes.
* The garage/flat is insured by the main property owner.
* There is no separate entry at the Land Registry, i.e. the 'flat' cannot be transferred to new owners.
* The flat could resort to being part of the main residence again without undue 'alterations', i.e. it could resort to being a room above a garage.
* Planning permission for a separate residence has not been obtained, indicating that the division is not intended to be permanent.
* The garage/flat does not have its own unique postal address.
Factors which dispute that the division is temporary include the facts that there is a separate entrance and metered supplies.
The Inland Revenue Property Income Manual at paragraph PIM4004 states that in disputed cases photographs will be essential and personal inspection of the premises desirable. Presumably 'Lucky Landlords', given this opportunity, should be able to show that the garage is indeed an integral part of the property.
Editorial note. The eleven replies received were equally divided in their views, with one not expressly deciding one way or the other. Those who thought that no relief would be due placed emphasis on the 'temporary division' requirement in the legislation and also on the passage from the Revenue's manual. However, the 'temporary division' test applies only where the division has brought about separate residences and, as 'Groundsman' points out, case law leads to the conclusion that, depending on the full facts, separate residences may have not been created here.
