If you rent out a spare furnished room in your home to a lodger and have received a rental income of less than £7,500, you don’t need to declare this to HMRC. This is due to the rent-a-room scheme.

Are you eligible?

Anyone who rents out a room in their own house is eligible.

You do not need to own the home – you may be renting yourself. If you do rent your house, it’s always worth checking with the landlord first to see if your lease allows it.

The scheme can also be used if you run a bed-and-breakfast or guesthouse and provide services alongside accommodation such as a meals and cleaning.

The room must be furnished and be in your main home to be eligible for the rent-a-room scheme.

What are the exemptions?

There is no need to tell HMRC about the rental income if the rental receipts are less than £7,500 for one person or less than £3,750 for more than one person. This exemption is automatic.

Rental Receipts are the rental income before deducting expenses and charges made for meals and cleaning etc.

If you have a lodger for less than a year, the limits are not reduced.

What if the rental income exceeds the threshold?

The scheme can still be used if the rental receipts exceed the rent-a-room threshold of £7,500 or £3,750 as appropriate.  The taxable amount is simply the amount by which the rental receipts exceed the rent-a-room threshold. This approach is beneficial when the rent-a-room threshold is more than the actual expenses.

However, where using actual figures will produce a loss, it is not beneficial to claim rent-a-room relief as this cannot create a taxable loss and, therefore, the taxable benefit of the loss will be lost.

If your rental receipts are over the rent-a-room threshold, you must complete a tax return. On the return, make sure you tick the relevant box to obtain the relief.

Rent-a-room may be more beneficial in certain years than others, and you can elect into the scheme on a year-by-year basis if it’s relevant.

Example 1

Marlon lets out the spare room to a lodger for £50 a week, earning him £2,600 per year.

As the receipts are less than £7,500, Marlon can use the automatic exemption for rent-a-room relief. He does not need to prepare a tax return or declare any income to HMRC.

Example 2

Archie lets out a room in his home for £12,000 a year. He incurs expenses of £2,000 a year.

Ordinarily, he would pay tax on his rental profit of £10,000. However, he could elect to claim rent-a-room relief and would only pay tax on his rental income over the rent-a-room allowance of £7,500. Therefore, he can reduce his taxable profit from £10,000 to £4,500.

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Any questions?

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