Rent a Room Relief

Deciding whether to rent a room in your home and wondering what the most tax efficient way to go about this is?

The ‘Rent-A-Room’ relief scheme is a tax exemption scheme, where, as a property owner you are able to let out a room in your home for up to £7,500 a year and this will not be subject to tax.
This must be furnished and in your main or only home to qualify.
If the rental income is below or equal to the threshold of £7,500, the relief is applied automatically, and no tax will be due.

For example

You let out a room in your home for £500 a month, equivalent to £6000 annually. Since your annual rental income is less than that of the threshold of £7,500, this will not be liable to any tax.
If another person decides to let out a room in the same property as you and receives income from this, the tax-free threshold is limited to £3,750.
This threshold of £7,500 (or £3,750 if two people are receiving income from letting within the same property) does not reduce if you let the room for only short periods at a time i.e., less than a year. However, the owner and lodger must reside in the property for at least some of the letting period to be able to claim the relief.
If you decide to rent out the room at a higher rate than the threshold, maybe to accommodate for food and utilities, the remaining rental income above the threshold will be subject to the same rate of tax that you pay.

For example

You are a higher rate taxpayer, liable to 40% tax. You have decided to rent a room in your primary residence for £800 a month, £9,600 annually, to include food, utilities etc.
Total rental income for the year £9,600
Rent-A-Room Relief – £7,500
Amount liable to tax £2,100

Tax liability = £2,100 x 40% = £840
You would have to pay £840 of tax, due to rental income being higher than the relief’s threshold.
In conclusion, if you are looking to rent a room, the ‘Rent-A-Room’ relief is an easy and tax-efficient way to claim that rental income.

If you would like help declaring your rental income, we provide set-up and support services. Book a free discovery call with us today.

Ella Johanson ACCA staff blog PJCO Peter Jarman
Ella Johanson
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