What is Rent a Room Scheme?

If a landlord is letting out a furnished room to a tenant in his only or main residence, a special relief is available. This is called ‘Rent a Room’ relief. The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your main residence. For the tax year 2017/18, if your gross income from renting a room in your main residence does not exceed £7,500 before deduction of any expenses, your rental income will exempt from tax.

The scheme is only available to those landlords who let a furnished room to a lodger in their own home, or to those who run a guesthouse or bed and breakfast. Short term lettings are also covered under this scheme.

Who is eligible to use this scheme

You can use the scheme if:

  • you let a furnished room to a lodger in your home, whether or not you own it
  • your letting activity amounts to a trade, for example, if you run a guest house or bed and breakfast business, or provide services, such as meals and cleaning

You can’t use the scheme if the accommodation is:

  • not part of your main residence
  • 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

How it works

Gross Receipts < £7,500 (2017/18 threshold)
If your gross receipts from letting are less than the Rent-a-Room threshold (2017/18: £7,500), you don’t pay tax on your profit. You are automatically exempt from tax on that income.

Gross Receipts > £7,500 (2017/18 threshold)
If your gross rental receipts are more than the limit, you may still be able to benefit under the Rent-a-Room Scheme. You can choose how you want to work out your tax:

  • You pay tax on your actual profit - your total receipts less any expenses and capital allowances, or
  • You pay tax on your gross receipts over the Rent-a-Room limit - that is, your gross receipts minus £7,500. You can’t deduct any expenses or capital allowances if you choose this method.

Losses

There is no relief for the losses if you use Rent-a-Room Scheme.

What Martax can do for you

  • Prepare your annual rental accounts for the properties whether these are residential let, Rent-a-Room scheme let, FHLs or commercial properties
  • Calculate your taxable position
  • Advise on claiming all the legitimate expenses to optimize tax savings
  • Complete your tax return using HMRC approved software
  • Deal with all the correspondence and answer your taxation queries
  • Advise you on the tax liability to be payable to HMRC and when they are due

If you need any help or advice in relation to your let properties, please get in touch.