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Spare Room Tax

You may have read several stories, blogs or articles on the Spare Room Tax subject. We have all seen this on the news and there is the understanding that this will not affect the private rental market...yet.

What is it?

The bedroom tax; as it is commonly referred to, is contained with the Welfare Reform Act 2012 and will cut the amount of benefit that people receive if they are considered to have a spare bedroom in their council or housing association home.

The measure will be applicable from April 2013 and estimations are that this will impact on some 660,000 social tenant households with around 64% of these households including person/s with a known disability.

Who will it affect?

All claimants in the social rental sector deemed to have at least one spare room will be affected including, foster carers, separated parents who share the care of their children, disabled people and families with disabled children including those living in adapted properties.

The cut will mean those currently in receipt of benefit will lose 14% for one spare bedroom and 25% for two or more spare bedrooms, this is estimated by the Government’s impact assessment to be around £14 - £16 a week loss on average for those affected.

How will it affect the private rental market?

Currently social tenants renting in the private rental market will not be affected as the Local Housing Allowance (LHA) sets out the entitlement for each room and in the majority of cases the tenant will need to top up to meet the rental demand in the private market. The consideration that private landlords make when agreeing tenancies for LHA tenants is to work out the tenants entitlement based on the LHA rates for the area in which they own the property, this is easily checked with the Valuation Office Agency and on their website.

In essence, the rules surrounding the new spare room tax already exist with the private market as tenants are granted an allowance based on the number of bedrooms they are entitled too and so most private landlords will know what those allowances are. With private rents being higher than those in the social market a lot of these tenants will need to top up to meet the rental figure due. However, in some areas it is possible for tenants in receipt of benefit to have a spare room and they are therefore considered to dodge the tax.

For landlords with tenants already in place on a tenancy for LHA tenants there should be no change unless the number of people in the household changes.

The Impact 

Any impact on the private rental market in the short-term would appear to be positive as the changes may see a greater number of social tenants looking to the private market for homes, with this demand increase you would expect to see an increase in rental prices. However, any increase in this market can only be met by those tenants able to meet referencing requirements and able to afford the rent. This in turn would rule out those in receipt of LHA, whereby the allowance does not cover the whole amount of rent, being able to apply.

The prediction is that any rent increase would be short-lived and that the savvy landlord would choose instead to look at the potential to secure a long-term tenant that would otherwise have stayed in social housing.

What else should we be watching?

There are whispers that a legal challenge is in the pipeline on the grounds of equality. This challenge would raise a few points which may affect the rental market depending on the outcome. The primary goal would be to protect those vulnerable. A question would be asked as to whether enough consideration has been made for those 420,000 households, known to include a person with disability, and does the provision of £30m per year worth of discretionary housing payments go far enough, when the private market does not offer the same stock of specially adapted or disability-friendly properties.

With this in mind you would have to ask if the outcome would inflict a similar type tax on the private market to balance out the equality across the sectors, or would this pave the way for government assisted schemes to increase the stock of adapted and disability-friendly homes in the private market and whether private landlords would take up such a scheme... watch this space!

Visit Direct.Gov Spare Room Tax Calculator

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