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Making The Most Of Rent-A-Room Relief

Sarah Bradford, Property Tax Insider, October 2017

Sarah Bradford explores the opportunities for enjoying tax-free income under the rent-a-room scheme.

Making tax-free income is an attractive proposition, and those looking to earn some extra money by letting a room in their home can do just that, by taking advantage of the rent-a-room scheme. Under the scheme, it is possible to enjoy tax-free rental income of up to £7,500. The scheme is open to owner-occupiers and tenants who let furnished accommodation in their only or main home. However, those who rent their home would be advised to check their tenancy agreement to make sure that they are allowed to sub-let rooms in the property.

The scheme is available where: …

  • a furnished room is let to a lodger (rooms let unfurnished do not qualify); or
  • the letting activity amounts to a trade, e.g. running a bed-and-breakfast or providing additional services, such as the provision of meals or cleaning or laundry services.

The scheme is not limited to the letting of a single room – it can be used where more than one room is made available, as long as the owner/tenant continues to live in the property and the accommodation which is provided is furnished accommodation.

The scheme is not available where the accommodation is not provided in the main home of the person making it available – consequently, lets in holiday cottages, second homes, and buy-to:let properties do not count. And while it is not available for accommodation used as an office or for the purposes of any business, the benefit of• the scheme is not lost if a lo􀀝ger works at home in the evening, or study facilities are provided for a lodger who is a student.

The relief

The rent-a-room scheme effectively allows the recipient to ignore the income received from letting a furnished room (or rooms) if the gross receipts are £7,500 a year or less. Where at least one other person receives income from letting a room in the same property, the tax-free limit is halved to £3,750. The limit of £3,750 per person applies where two or more people receive letting income in relation to a property, meaning that it is possible to receive tax-free income in respect of a single property in excess of £7,500 a year.

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