What is rent-a-room relief?
Do you sub-let a room in your house to a lodger?
Having income from property normally means you need to consider your tax position, tell HMRC about it and possibly pay extra tax if you make a profit.
If you sub-let a furnished room in your own home to a lodger, you may be able to benefit from the ‘rent a room’ scheme.
Income from renting out a room to a lodger may qualify for ‘rent-a-room relief’, if:
your gross rent-a-room income does not exceed £7,500, 2017/18 (£4,250 up to 2015/16) for the tax year (before the deduction of any expenses),
the source of the income relates only to one residence,
and the following conditions are met:
the income arises from the letting of furnished accommodation in a ‘residence’ in the UK, or from associated goods and services (for example providing meals, cleaning or laundry services to a lodger),
the house in which the room is let is your only or main residence, and
if it were not for the rent-a-room relief, the income would be taxable (either as trading income, property income or miscellaneous income).
If all of the above conditions are met, the income is exempt from tax and you may not claim any deductions for related expenses. You do not need to do anything for the exemption to apply; it will apply automatically unless you ‘opt out’.
What if my rent-a-room income exceeds £7,500 for any one year?
If you meet all of the conditions for rent-a-room relief above, but your gross rental income exceeds £7,500, 2017/18, you do not qualify for the automatic exemption.
However, you can make an election to opt in to an ‘alternative basis’. The taxable amount will then be the gross rent received, plus any payments received for meals and services, less £7,500, 2017/18.
This election must be made to HMRC in writing by 31 January, in the second year after the end of the relevant tax year. For example, if you wish to opt in to the ‘alternative basis’ for the tax year ended 5 April 2017, you must make the election by 31 January 2019. You usually do this by ticking the relevant box on your self assessment tax return that you want the relief to apply.
What if the rent-a-room income is split between me and my spouse/partner/flatmate?
If you and another person are both due to receive rental income from the same property, then the allowance is shared equally between you. The above tests and conditions still apply, but the threshold in each case is £3,750, 2017/18 instead of £7,500, 2017/18. This means that if your income exceeds £3,750 then you can elect to opt in to the ‘alternative basis’, and if it does not then it is automatically exempt.
We can help you the most tax efficient choice for your set of circumstances. We offer bespoke solutions so why not give Ping a ring on 01256 769792 to speak to an adviser or email us at firstname.lastname@example.org.