Rent a Room Relief

26 May 2008

Rent a Room Relief

The Rent a Room scheme is an optional exemption scheme that lets you receive tax-free 'gross' income up to £4250 (receipts before expenses) from renting furnished accommodation in your only or main home.

Print this article E-mail to a friend Ask a Question

Rent a Room Relief

Key Points

Rent a Room Relief is only available if you let a room in your own home.
You can switch basis each year if you want.
Can allow you to have up to £4,250 of additional income tax free in some circumstances.
Ideal if you have a lodger.

Quote: "Money couldn’t buy friends, but you got a better class of enemy. Spike Milligan" 1918-2002 Puckoon, 1963

Rent a Room Relief

Rent-a-room relief provides a favourable tax regime if you satisfy certain criteria. These are:

The room you let must be in your only or main residence for at least part of the tax year under review.
The income from renting the room must not be part of any trade or letting or other agreement.

Subject to the above, an owner or tenant who lets a room in his own home is exempt from tax on rent-a-room receipts of up to £4,250 a year. The rent-a-room receipts are taken to include charges for cleaning, meals, laundry etc.

Where the rent-a-room receipts exceed £4,250 per year the taxpayer may choose either to be charged tax on rent (including charges for other services) less expenses in the normal way (see Taxation of Property Income), or he can be charged on the excess of the rents etc over £4,250 with no deductible expenses.

If someone else has been receiving rent for letting a room in the property during the 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.

If the taxpayer elects to be charged to tax on the excess of rent-a-room receipts over £4,250 then in that year he may not claim Capital Allowances.

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.

If you use the rent-a-room scheme you cannot claim any expenses relating to the letting (for example, wear and tear, insurance, repairs, heating and lighting).

You need to decide if it is better to join the scheme or alternatively to declare all of the letting income and then claim expenses using your self-assessment tax return. Either you can:

Pay tax on the profit you make from a furnished letting in your home - rents received less expenses.
Pay tax on the income (gross amount of the rent receipts) including receipts for any related services such as meals that you provide, less the £4,250 (or £2,125) exemption limit.

Unless you tell the HMRC within strict time limits, the first option will automatically apply.

Page content supplied by: Maurice Patry FCA of www.landlordstax.co.uk