A key plot point of the 2006 film ‘The Holiday' is that the two female leads swap their homes for the holiday season to nurse their broken hearts, says Chris Etherington, tax partner, RSM, in a briefing note on 22 August.
It's probably fair to assume that earlier drafts of the film's script did not have Kate Winslet and Cameron Diaz's characters reconsidering their choice after discovering there was a potential tax liability at stake from exchanging homes. That said, it wasn't long before then that George Lucas revealed Star Wars apparently started because of an intergalactic tax dispute, so anything is possible.
As The Holiday nears its 20th anniversary, the concept of home swapping has seemingly grown in popularity with a variety of different websites offering opportunities to list and view potential homes to swap.
That includes the likes of HomeExchange who claim to be the leader in the field with over 100,000 members in 130 countries. Some newspapers have even got in on the action with Guardian Home Exchange, operated by the company Home Base Holidays, offering the opportunity for members to contact each other and swap homes for an annual membership of £59.
Many of these websites provide useful guidance on points to be aware of ahead of swapping one home for another but the potential tax consequences do not appear to feature. The arrangement is clearly marketed as providing free holiday accommodation but that arguably isn't the reality of the situation. It could be argued that it represents a simple bartering transaction, that the two families are effectively renting their properties to each other and providing a payment-in-kind. Cash may not be paid but the ‘free' accommodation provided in return to each family has a value.
So, what of the potential tax consequences? A UK property business begins for tax purposes when a taxpayer "generates income from land", meaning that they are exploiting the land as a source of rent or other receipts.
In 2016, changes were made to the law to ensure that trading and property income received in a non-monetary form were taken into account when calculating a taxpayer's profits. At the time, it was speculated that these changes were targeted at Airbnb landlords accepting payment in non-cash form, eg being provided sports tickets and services provided by the tenant.
Advocates of home swapping might reasonably challenge that there's no evidence of HMRC seeking to apply the tax law in this way. That may be because taxpayers could potentially benefit from ‘rent a room relief', in respect of the swapped home's value. Qualifying receipts for ‘rent a room relief' of up to £7,500 are not taxable.
That amount of 'rent a room relief' has been frozen at £7,500 since 6 April 2016. This may have been sufficient in the past to cover most home swap arrangements. However, it's possible that the value of some home swaps could be worth more than that amount now with the inflation of rents we've seen in the market over the last couple of years.
As it stands, the amount of potential tax at stake could be relatively low compared to the effort required in assessing and collecting it. Indeed, the issue of home swaps may not be on HMRC's radar at all at the moment. However, if rents for short-term lets continue to rise then home swappers might return in due course to an unwelcome surprise tax liability.
By Chris Etherington, tax partner, RSM.
