Rent a Room Scheme – I intend to let a room in my home to a lodger. Do I have to declare the income I receive to HMRC and if so how will this be taxed?
Any income you receive as rent MUST be declared to HMRC, at the very latest on the 6th of October following the tax year in which the income has been earned.
A special scheme exists in the case of lodgers, as opposed to normal tenants, which means you can claim tax relief on the first £4,250 of income.
Rent-a-room relief introduced in 1992 applies to income from providing furnished residential accommodation to a lodger – that is providing accommodation in your own main residence.
‘Residence’ in theory also includes a caravan, a houseboat or a single flat within a block.
This tax relief does not apply to:-
Rent from a property not also occupied by the owner
Letting your house while working abroad.
Companies or partnerships
Commercial lets including an office, store-room or garage
Rent paid by a child to its parents
Relief can apply when individuals receive income jointly (husband and wife, or civil partners), and very small bed & breakfast or guest house businesses, providing:
(1) The house in which the business is carried on is also your only or main residence
(2) The normal rent-a-room conditions are met.
Under the rent-a-room scheme a taxpayer can be exempt from income tax on profits if the gross receipts they receive (before deduction of expenses) are £4,250 or less. Intrestingly the treasury has not increased this allowance amount since the scheme was introduced in 1992.
However, it is not possible to claim any of the expenses of letting. ‘Gross receipts’ includes not only the rents but also payments made to the house owner for the provision of other goods or services, such as meals, cleaning laundry etc.
The £4,250 limit is halved if any other person (including spouse) also receives income from the same source.
If the gross rents should exceed this limit, then the taxpayer can choose to be taxed on just the excess or alternatively elect for the relief not to apply and use normal income and expenditure rules for rental income.
By Tom Entwistle,
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