The Rent a Room scheme allows owner and tenants to receive tax-free rental income if you provide furnished accommodation in your main home.
If the gross receipts are less than £7,500 (or £3,750 – it is halved if the income is shared), automatic exemption occurs.
If receipts are significantly less than the limit it may be better to pay tax in the normal way, but HMRC will need to be informed within the appropriate time limit – 31st January.
If gross receipts are more than £7,500 (or £3,750), there is the option available to choose how to work out the tax.
There are two options:
- Pay the tax on the actual profit – total receipts less any expenses and capital allowances.
- Pay tax on the gross receipts over the Rent a Room limit – gross receipts minus £7,500 (or £3,750). Expenses or capital allowance cannot be deducted using this method. Tax payment automatically stops if the rental income drops below the limit.
Gross receipts include rental income (before expenses), any amounts received for meals, goods and services and any balancing charges.
A person is eligible for the scheme if they are a resident landlord or if they run a bed and breakfast or a guest house.
You can’t use the scheme if the accommodation is:
- not part of your main home when you let it
- not furnished
- used as an office or for any business – you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities
- in your UK home and is let while you live abroad
- the whole of your home, rather than a part of it