Introduction

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The Rent a Room Scheme is a generous tax allowance for renting out a spare room in your home.  Most live-in landlords may have no tax to pay on rental income up to £7,500.  The scheme is optional and may not make sense for everyone.  In most cases it is simple, and there is nothing for the landlord to tell the taxman.

Rent a Room Scheme Conditions

To use the scheme, you have to meet some simple conditions:

  • The accommodation must be furnished.
  • It must form part of your main UK home, and you must not be living abroad.
  • The room must not be used as an office or for business (but evening and weekend study / home-working is allowed ).

If you charge for additional services such as meals or laundry, this income also counts as part of the rental income.

Rent a Room Scheme New Rule April 2019

From April 2019, there is an additional rule that you must be living in the property at the same time as the tenant for at least some of the letting period. This means, for example. that you cannot get relief when renting your home out to a temporary tenant who is only there whilst you are away on holiday. The change is intended to make sure the scheme meets the original policy objective, as an incentive for the provision of furnished accommodation to lodgers.

Is the Rent a Room Scheme Right for Me?

The Rent a Room scheme is optional. One key point is that you may not claim any expenses relating to the rental (such as wear and tear, repairs, ground rent, legal fees, agent fees, laundry, insurance, heating and lighting).  You will pay tax on the amount of your rental income that exceeds £7,500 per year.

If you opt out, you will pay tax on the rental profit (i.e. the total rental income minus any allowable expenses).  It may be worth doing this if you have made a loss you wish to carry forward against future years’ taxable rental income. Also, you might opt out if your expenses exceed the £7,500 Rent A Room Scheme limit.

You can change the method you use each year, but you must let HMRC know by 31 January following the end of the tax year if you do change the method. You must keep to a single method within each tax year.

If you run a bed and breakfast, a guest house, or provide catering and cleaning services as part of a letting business, you may still be able to participate.  Check with your tax office for details.

What Do I Tell the Tax Man?

If your rental income is less than £7,500 and if you are opting into the scheme, exemption is automatic.  If you normally complete a tax return, tick the box on the tax form. Otherwise there is nothing to tell the tax man.

If you have made a loss on the rental and you would like to carry that loss forward against future years’ taxable profits, you will need to complete a tax form.

If your rental income exceeds the £7,500 limit, you must complete a tax return and you will need to choose whether to opt-in (pay tax on the gross rental income minus £7,500) or opt out (pay tax on the gross rental income minus allowable expenses).

Even if you intend to use the use the Rent a Room scheme, it’s still a good idea to keep records of expenses as well as income, in case you decide to opt out of the scheme later on.

Check the HMRC website for their guidance notes.

Finding the Right Lodger

Demand for spare room accommodation is high, particularly from professionals who want a decent place to live but cannot afford to buy, and increasingly from weekday lodgers who work away from home Monday to Friday.

When vetting potential renters, make sure you take up references from current employers and landlords.

Place a FREE room-offered advert on our site and you could soon be on your way to making a tax-free income from your spare room!

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