Rent a Room Relief

Rent a Room Scheme – boosting your tax-free income

With the explosion in Airbnb lettings and other similar initiatives, it’s worth remembering that since April 2016, up to £7,500 of rental income can be earned tax-free under the government’s ‘Rent a Room’ scheme.

This is an optional scheme available to occupiers or tenants who rent out a furnished room or run a B&B or guest house business from their home. You don’t have to be a home owner to take part. If you’re renting (i.e. you’re a tenant) and your lease allows it, you can then sub-let to a lodger and take part in the scheme.

It’s not possible to use the scheme for homes converted into separate flats.

How do I know if it’s worth claiming Rent a Room relief?

If your gross rental receipts are below £7,500, you’re automatically exempt from paying tax on that income.

However, if you’ve made a loss, it’s likely to be better for you to pay tax on the normal basis, i.e. receipts less expenses. If you decide to do this, you’ll need to notify HMRC within the time limit.

If your gross rental receipts exceed £7,500, you have a choice between:

  • paying tax on the profit (total receipts less income) or
  • paying tax on the gross receipts less the £7,500 Rent a Room Relief; if you choose this option, it’s important to note that you can’t claim any expenses or capital allowances and you’ll need to tell HMRC within the time limit

Can I opt in and out of the Rent a Room scheme?

Yes, you can opt in and out of the scheme depending on your rental figures for each year. This is done on your tax return.

Amounts are reflected on the property pages of your tax return which will show if you’re claiming Rent a Room relief.

It’s important to keep records of income and rental expenses incurred should you choose to opt out of the scheme later on.

Note that you’ll need to complete a tax return if your ‘Rent a Room’ income exceeds £7,500 each year. However, if you earn less than £7,500 p.a. exemption is automatic, i.e. you won’t need to submit a tax return.

Other considerations…

Insurance cover is vital which should be obtained via a relatively quick phone call.

If you’re a tenant yourself, check you can sub-let under the terms of your lease.

And if you have a mortgage, check with your lender that you can take part in the scheme

Rent a Room

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If you’re considering renting out a furnished room and want to understand how this may affect your tax position, please contact Curo’s head of tax, Julia Whelan on 01527 558539 or at [email protected]