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Rent a room in your home

The amount of tax-free income you can earn if you rent a room in your home is now £7,500 per annum or £3,750 if two persons own a property jointly.

You can use the scheme if:

  • You let a furnished room to a lodger
  • 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 Rent-a-Room Scheme if the room 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 but is let while you live abroad

If your Gross receipts from letting aren’t more than the Rent-a-Room limit of £7,500 (or £3,750 if jointly owned), you don’t pay tax on your profit. If they’re more than the limit, you may still be able to benefit under the Rent-a-Room Scheme.

Gross receipts include:

  • Rental income (before expenses)
  • Any amounts you receive for meals, goods and services, such as cleaning or laundry
  • Any balancing charges (talk to THP if you don’t know what there are!)

If your Gross receipts are less than £7,500 (or £3,750), you are automatically exempt from tax on that income.

If you’ve made a loss however, it may be better for you to pay tax in the normal way – that is, on your receipts less expenses.

If your Gross receipts are more than £7,500 (or £3,750), you can choose how you want to work out your tax.

It can be the actual profit made (rents less expenses) or the gross rents received less the £7,500 (£3,750) allowance; whichever produces the better result.

 

Avatar for Karen Jones
About Karen Jones

Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.

With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.

Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”

Karen’s specialist skills:

  • Personal Taxation
  • Tax Efficient Planning
  • Trust Administration
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