Rent a room

IF YOU rent out space in your own home you may be able to take advantage of the Rent a Room scheme. This means that the first £7,500 of any income received from the letting is usually exempt from income tax.

To be eligible for this you must be an owner-occupier or tenant (it does not apply if you are letting out the whole property), and be letting furnished accommodation in your only or main home.

The tax relief applies to gross income received in the tax year from the letting, regardless of how many rooms are let, up to a limit of £7,500.

This means that any income you receive as landlord (e.g. for rent and/or services you provide for a tenant, such as meals or laundry services) up to £7,500 will not be liable for income tax. No deductions for the expenses of letting can be made from the gross income, which means, for example, you cannot claim any accountant’s fees as an allowable expense.

If you do not normally receive a tax return and your receipts are below the tax-free threshold for the scheme, the tax exemption is automatic you do not need to do anything. If receipts are above the tax-free threshold, you will need to complete a tax return and claim the tax relief if you wish to do so.

If you, as a landlord, receive more than £7,500 from letting in a tax year, under the Rent a Room scheme you can choose between either:

Paying tax on the gross letting income over and above the basic figure of £7,500. (meaning you cannot claim a reduction for allowable expenses)

Or pay tax in the usual way, that is, on total letting income minus allowable expenses, ignoring the £7,500.

The Rent a Room tax relief is reduced by a half (to £3,750) if, during that tax year, someone else receives income from letting accommodation at the same property.

Joint owners who receive income from letting accommodation in the property can decide if one of them should receive the full tax relief, or whether the relief should be divided between them.

If you are running a business, for example a bed and breakfast, the Rent a Room scheme can still apply. You will need to complete the self-employment pages of your tax return.

Further information about the Rent a Room scheme is available on the GOV.UK website at www.gov.uk.

If you are thinking about renting out a room, you should consider whether this would affect your home insurance or the terms of your mortgage.

You should also consider what the housing status of the person renting the room will be.

If you are receiving means-tested benefits, you will need to consider the effect of any rental income on your benefit entitlement.