The current Rent a Room Scheme allows you to earn up to £7,500 per year tax-free from letting out rooms within the taxpayer’s main residence.
You automatically receive the exemption if you earn less than the threshold. However, if you earn more than the threshold you need to complete a tax return.
Where the gross rental income exceeds £7,500, say £12,000, the excess of £4,500 would be taxable. Alternatively, if it more appropriate to be taxed on the profit then you can decide not to opt in to the scheme and instead deduct the costs of providing the living accommodation such as a proportion of mortgage interest and light and heat.
You can us the scheme if you let a furnished room to a lodger and can cover guest houses and bed and breakfasts. However the scheme only provides relief where the rooms let are in the taxpayer’s main residence, and it should also be noted that if the property is jointly owned, the relief is halved and would be £3,750 each.
You can’t use the scheme if the lettings are in another property, however for type of lettings you may benefit from the new £1,000 property allowance that can be set against the gross rental income.
Contact us for further information.
Jane Frith 18th May 2018