What Is A Rent A Room Relief?
Rent a Room Relief is an optional scheme that allows you to earn up to £7,500 a year tax-free when you let out furnished accommodation to a lodger in your main home.
The government introduced the scheme to increase the availability of low-cost accommodation – so don’t miss out. If you want to let a spare room in your home, you could be eligible.
Do I qualify for the Rent a Room scheme?
To qualify for the scheme, the accommodation you let must be part of your main residence.
You don’t need to own the property to qualify. Renters can still claim tax relief, as long as they receive permission from their landlord to sublet a spare room to a lodger.
Income earned through letting a room for office space or other business purposes is not eligible for Rent a Room Relief.
However, bed and breakfast-type properties or guest houses are eligible, so long as the property is also your main residence.
Claiming the Rent A Room Tax Relief
The process for claiming your tax relief depends on the profits you make from your rental income. This includes profit made on rent as well as associated goods and services, such as meals or cleaning services.
Rental Income below £7,500 per year
When your rental profit for a tax year is less than £7,500, then you will be automatically exempt from paying income tax, so you don’t have to do anything.
Rental Income above £7,500 per year
When your rental income exceeds £7,500, you pass the threshold and you must complete a tax return.
In this case, you have two options for how to compute your profits. First, you can choose to be taxed on an alternative basis. This means that you claim the relief. The £7,500 allowance is deducted from your rental income, and you only pay income tax on the excess rent (above £7,500p.a.).
Alternatively, you can choose to pay income tax in the usual way. This means you will be taxed on your rental profit (on the amount of the rent received after deducting any allowable rental expenses).
This latter option can be more tax-efficient when you had high rental associated expenses in the year.
Sharing the tax relief with others
The rules for Rent a Room Relief scheme are slightly different if more than one person is benefitting from the rental income.
When more than one person receives rental income, the tax-free limit allowed by the Rent a Room Relief is halved to £3,750.
This £3,750 per-person limit stays the same no matter how many other people receive a share of this rental income.
Airbnb Rent A Room Relief – is it possible?
Airbnb properties and other short term lets are also eligible for the Rent a Room scheme, as long as the conditions of the property being your main home are met.
The government did have plans to introduce a shared occupancy test in 2019, to limit Airbnb properties using the Rent a Room Relief scheme. This would have meant that for each let, the relief claimant would have to stay in the same accommodation for at least one night.
However, in the 2018 budget it was decided that these rules were overly complicated, and plans were scrapped. As of 2021, you have no obligation to prove your stay overlaps with that of your tenant. It is only stipulated that the room you are letting is part of your main residence.
Homeowners letting on Airbnb also have the option of benefiting from a tax-free property allowance of up to £1,000 each year. However, you can’t claim this at the same time as the Rent a Room Relief.
Still need Rent A Room Relief scheme help?
If you’re looking to find out more about the Rent a Room tax relief or discuss your current situation in more detail, please do not hesitate to contact us.