Lodger supply slows as calls grow to raise Rent a Room tax threshold

Rental stock from households taking in lodgers is barely rising despite intense pressure across the housing market, research reveals.

Growth in the number of rooms available to rent in people’s homes increased by just 1.5% in the past year.

Previously, it had surged by 19%, the flatshare platform SpareRoom says, and it now wants a rule change to encourage people to let rooms.

Close short lets loophole

A director of the firm, Matt Hutchinson, said: “People rent out rooms in their homes for all sorts of reasons – financial, practical and social – and in doing so they inject desperately-needed supply into the UK room rental market which is suffering under the weight of intense demand that’s inflating rents.

“The original intention of the Rent a Room scheme was to increase the quantity and variety of low-cost rented housing.

“However, because the scheme doesn’t stipulate a minimum length of stay, in recent times it has also been used by those renting out furnished rooms to holidaymakers on sites like Airbnb.”

He added: “It’s time this loophole was closed so the scheme can help renters as intended.

“We also want to see the scheme’s threshold increased to reflect rents today.

“Tax lost to the public purse by raising the threshold could be recouped by taxing holiday lets.”

25% of shared accommodation

The data shows that a quarter of all shared accommodation now comes from live-in landlords.

These rooms typically cost less, around 13% below standard rents, helping keep a lid on rent price inflation.

Rents have jumped 28% in five years and in Q3 this year, the UK average hit £753 a month.

However, the tax rules have not kept pace with the Rent a Room scheme threshold remaining unchanged since 2016.

That’s when the average monthly rent was £573 but today, letting one spare room could generate around £9,036 a year and £7,500 of that is tax free.

With 58% of postcode districts now seeing rents above £625 a month, SpareRoom says more hosts risk falling into tax bands they never expected.

Tax free earnings worry

The platform surveyed 1,582 people who previously rented to lodgers or had considered doing so.

Most respondents said a higher allowance would encourage them to open their doors again.

Many say they left the market because their earnings would exceed the tax-free limit.

The company says the sector never fully recovered from the pandemic though numbers rose after lockdowns eased but growth has slipped back again.

Short-let tax breaks

A long-standing loophole means the same tax break can be used for short-stay holiday lets.

SpareRoom says a simple 31-day minimum stay requirement would ensure tax relief supports housing rather than guest nights.

There are an estimated 28 million empty bedrooms across England, Wales and Scotland.

Releasing 5% of those would provide places to live for 1.4 million people struggling to find affordable accommodation.