Rent-A-Room Income Tax Relief

A client recently contacted me as he was looking to increase the rent that his lodger pays and wanted to make sure that any changes he made didn't have a massive impact on his income tax position ...

If you have a furnished room available, you could qualify for Rent-A-Room Income Tax relief!

For those of you that are not familiar with this scenario, the client was referring to the Rent-A-Room Income Tax relief. This is available if you let a furnished room to a lodger in your only or main home.

"The relief is also available if your letting activity amounts to a trade, such as a guest house or B&B!"

You can not use the Rent-A-Room Income Tax relief if the room is not part of your main home or if the room is not furnished. In addition, the room cannot be let as an office or for any type of business activity, and the room cannot be let in your UK home while you are living abroad.

The relief available was previously £4,250 per annum, but from 6 April 2016, this has increased to £7,500 per annum.

There are various ways in which you can make use of the Rent-a-Room relief, but you must bear in mind that the limit is halved if you are receiving the rental income jointly with another person.

Firstly, if your gross rents for the tax year are less than the £7,500 allowance you are automatically exempt from tax on that income. If your gross rents in the tax year are more than £7,500 you can choose how you would like to work out your tax:

Option 1 - You can pay tax on your actual profit from renting that room. This would be your gross rent less any expenses you have incurred. Examples would be things such as electricity or repairs that you can attribute to being incurred because you are renting that room.
Option 2 - You can pay tax on your total gross income less the rent-a-room relief of £7,500 or £3,750 if you are receiving 50% of the rent.

HMRC will automatically use option 1 to calculate your tax liability.

If you would like to use option 2 you need to tell HM Revenue & Customs (HMRC) within the specified time limit. The time limit to notify HMRC is by the 31st of January following the end of the tax year, so typically the claim would be made when submitting your personal tax return.

You can change the method you use to calculate your tax liability from year to year, and you can claim the annual relief of £7,500 even if you are not renting a room for the full tax year.

If you would like any further information about the Rent-A-Room Income Tax relief or would like Essendon to review the most efficient way for you to claim it, call us on 01908 774320 or click here to ping over an email and let's see how we can help you.

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More about Gemma Barry ...

Gemma is ATT (Association of Taxation Technicians) qualified, and has worked at Chancery for 10 years before joining Essendon as the Tax Compliance Team Leader. In addition Gemma has now taken on the role as practice manager.

Gemma’s day to day duties include assisting clients to ensure they pay the correct amount of tax and meet their filing deadlines, organising the practice and the people within it.

In Gemma’s spare time she enjoys travelling, going to the cinema, and is a fair weather cyclist.

Rent-A-Room Income Tax Relief

Different ways to claim ...