Rent a Room Tax Relief
Rent-a-room relief provides a favourable tax regime if you satisfy certain criteria. These are:
- It must be a furnished room which forms part of your only or main residence. This applies to individuals who rent their home as well as those who own their home
This does not apply to rooms let as an office or for other business purposes but does apply to genuine lodgers who study in the home or who do some of their business work in the home.
There is an exemption from income tax where gross receipts are £4250 or less. Gross receipts include any other payments received for the provision of any other services e.g. meals, cleaning, laundry, in connection with the letting
Receipts over £4250 can be taxed on an alternative basis which may produce a lower tax bill. The individual can elect to pay tax on the net receipts after deducting relevant expenditure or, the amount by which the gross receipts exceed £4250 without the deduction of any actual expenses or capital allowances.
If someone else has been receiving rent for letting a room in the property at any time during the tax year then the amount of the relief is halved to £2,125.
The taxpayer is at liberty to claim the relief in one year and not in the next, and then to claim it again at any time in the future. A beneficial example of not claiming the relief would be where an individual has unutilised rental losses brought forward from a previous tax year.
Pros & Cons of the Rent a Room Scheme
Like most things when it comes to tax schemes there are advantages and disadvantages and it all comes down to individual circumstances.
Rent-a-Room is not mandatory and each case will need to be reviewed individually to determine the most advantageous claim.
All claims must be made to HMRC within 22 months of the end of the tax year in which the rents were received. For example:
Rents received during tax year ended 5th April 2009. Claim must be made by 31st January 2011.
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