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By Ali Qassim
Businesses selling alcohol will get extended licensing hours to mark the marriage between Prince Harry and Meghan Markle but fledgling home entrepreneurs mustn’t expect the U.K. tax authority to relax rules so they can earn some extra rental income from the Royal Wedding.
On the contrary, Her Majesty’s Revenue & Customs will be on their guard against any enterprising individuals that fail to declare any additional rental income, London-based accounting, tax and advisory practice Blick Rothenberg warns.
As Nimesh Shah, partner at Blick Rothenberg, put it to those taxpayers hoping to earn extra cash from the influx of royal fans and visitors to the wedding venue, Windsor, around the May 19-20 weekend: “If potential customers can see their advertisements online, so can HMRC.”
Shah said the warning applied mainly to those providing short-term accommodation but also to those individuals renting out a parking space along the route, to royalists wanting to catch the parade, to souvenir traders, or to those hawking food and drinks.
“Even a relatively small amount of additional income can lead to a tax liability,” he said. Breaches of tax rules could lead to hefty penalties, he added.
Certainly, the Royal Wedding provides locals in Windsor with an unprecedented opportunity to supplement their incomes.
For instance, a two-bedroom home in Windsor is renting for more than 3,000 pounds ($4,049) a night while properties with a view of key locations along the wedding route such as Windsor High Street could garner up to 15,000 pounds a night, according to local estate agents.
“Many people could be on to a real winner as renting their house along a prime spot to catch the married couple could pay the mortgage for the whole year,” Shah said.
For budding entrepreneurs wanting to make the most of the occasion without flouting HMRC rules, Shah suggested the “ Rent-a-Room Scheme,” which generally applies to owner-occupiers and tenants who receive rent from letting furnished accommodation in their only or main home.
The scheme allows users to make gross receipts of up to 7,500 pounds in one tax year before having to pay any tax, although this is reduced to half the amount—3,750 pounds if the property is owned jointly.
In fact, the Royal Wedding may be one of the last opportunities for short-term lets to benefit from the relief, Blick Rothenberg highlighted in its May 16 statement. HMRC is currently reviewing the feedback from a consultation — a call for comment — on its plans to review the relief to ensure it is more aligned with long-term letting arrangements.
Shah said “the alternative method available to taxpayers is to tax all rental income and claim deductions for expenses.”
He said that for those individuals already registered for self-assessment, any rental income must be reported on their annual tax return regardless of whether the “Rent-a-Room” scheme applies and the appropriate box should be ticked.
“For those not already in self-assessment and whose rents are below the relief threshold, the exemption applies automatically and it is not necessary to register,” he said.
For other would-be entrepreneurs, Shah advised making use of two new annual allowances that were introduced last year, in additional to each individual’s personal allowance of 11,850 pounds.
The first exempts the first 1,000 pounds of trading income per year per annum, and would typically cover those individuals who plan to sell strawberries or bottled water outside their homes.
The second allowance covers the first 1,000 pounds of rental income, which would include income from letting out parking spaces or driveways to tourists and royal followers. “For those individuals renting out rooms in their own homes, the income can be tax-free provided it doesn’t exceed certain thresholds,” he said.
Penalties for submitting a late annual tax return start at 100 pounds, rising to 1,000 pounds plus an additional 5 percent of any tax due, depending on the date of submission, Blick Rothenberg said.
Interest will be charged on late payments of tax, and late payment penalties may also be charged—up to 10 percent of the tax due, the firm said.
Separately, Meghan Markle will need to make some major decisions on her tax status after the wedding, Blick Rothenberg said in a separate statement May 16.
The biggest impact on her future tax status will be whether she is able to remain non-U.K. domiciled, which would give her several major tax concessions. Under the Domicile and Matrimonial Proceedings Act (1973), women in the U.K. are allowed to establish a domicile independent of their husband.
The first benefit as a non-domicile is that she can claim tax relief in respect of her non-U.K. duties for the first three tax years she is resident in the U.K., said Lee Hamilton, a partner at Blick Rothenberg.
Second, Markle’s non-U.K. investment income won’t be subject to U.K. tax, provided she doesn’t remit this income to the U.K., a status which can apply for up to 15 tax years from the date Markle became U.K. resident. Additionally, Markle’s inheritance tax would only be due on U.K. assets.
Whether Markle will continue to be considered a non-dom in the long-term will depend on HMRC, based largely on case law, although the tax office to date hasn’t had to consider “marrying a Royal” as a factor, Hamilton said.
Despite the non-dom tax benefits, as a U.S. citizen, irrespective whether she is resident in the U.S., Markle’s worldwide income will still be liable for U.S. tax revenue purposes.
“This may reduce the effectiveness of any U.K. tax planning, although fortunately the U.S. will usually allow credits to be claimed in respect of U.K. tax paid on any income which is also taxed in the U.S.,” Hamilton said.
To contact the reporter on this story: Ali Qassim in London at email@example.com
To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax
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