What is the Rent a room scheme?👀
The rent a room scheme is a government scheme which allows you(a resident or owner occupier landlord) to earn up to £7,500 tax free when you rent a furnished part of your home out. The home must be your only or main home. If you share this income with your partner the amount you can earn tax free is halved. 😋
The tax free income you can earn through the rent a room scheme is subject to change so please check prior to filing your tax returns.
The tax free income you can claim is the same even if you let out part of your home for less than 12 months.
There are no restrictions on how much of your house you can let out but the part you rent out must be furnished.
What if you earn less than the rent a room scheme threshold?
If you earn less than the threshold of £7,500 then you don't need to do anything as the tax exemption will be automatic.🙌🏻
If you have made a loss then it might be better to pay tax in the normal way. This means receipts - expenses. You should ensure you check with an accountant on which method is the most tax efficient for you before filing your taxes with HMRC. You should inform HMRC on which way you want to file your taxes as there may be a time limit on this.
It is not a requirement to opt into this scheme as you can simply record the income and expenses on the property section of your tax return.
What if you earn more than the rent a scheme threshold?😮
If you earn more than the threshold the you must file a tax return to see if you can still claim the tax relief.
Option A: you pay tax on your rental income minus £7,500 (with no deduction for expenses or capital allowances)
Option B: you pay tax on your actual profit (rental income minus expenses and capital allowances)
You are eligible for the rent a room scheme if:✔
You are a resident landlord. You cannot claim from this scheme if you do not live in the property.
You run a bed and breakfast
You are not eligible for the rent a room scheme if:🛑
Your home is one of those which has been converted into separate flats.
You live abroad but let out your UK home
The home is not your main home or part of it and you do not live in it
The home is not furnished when you let it
If the home is used as your primary work place or for any business although 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
How to calculate your rent a room scheme relief📅
The £7500 rent a room scheme threshold limit refers to the gross receipts earned.
Rental income before expenses
Any funds received for electricity, gas, water, laundry or feeding.
Any balancing charges
Other considerations you should take into account for the rent a room scheme
Notify your insurer✔
You should consider the impact of your insurance on a lodger or new tenant and check with your insurance provider on if you are still covered, if they will be covered or if you need new insurance. Not disclosing this information to your insurer could come back and hurt you in the eventuality you need to make a claim.
Check with your landlord or freeholder🧔🏻
If you are renting the house or if you have a lease you should check with your landlord or freeholder to confirm if you can indeed rent out part of your house. If you don't do this you may be violating some of the terms of your agreement with yourself and the freeholder or landlord.
Check with the council🏚
Your council tax band or any exemptions you may have gotten in the past such as single occupancy exemptions may go out the window once you begin renting the house to someone else. You should check this with your local council to determine how much council tax will cost you and then make a determination as to if you want to rent out the property and at what cost.
Check your tax & legal requirements👀
Your tax position may change based on how many people you rent your house to and the same goes for your legal obligations. You may need to provide a gas certificate, meet health and safety requirements and the furnishings must be up to standard.