Rent a Room Scheme

The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.

The tax exemption is automatic if you earn less than £7,500. This means you do not need to do anything. If you earn more than this you must complete a tax return.

Eligibility:

You can opt in to the scheme at any time if:

👉You are a resident landlord, whether or not you own your home

👉You run a bed and breakfast or a guest house

👉You cannot use the scheme for homes converted into separate flats.

If your gross receipts are more than the Rent-a-Room limit:

There are two methods so you can choose how you want to work out your tax:

You can change between each method from year to year. You need to decide which method is best for you and tell HMRC within the time limit each time you want to make a change.

🎯Method - 1

You pay tax on your actual profit — your total receipts less any expenses and capital allowances.

🎯Method - 2

You pay tax on your gross receipts over the Rent-a-Room limit i.e., your gross receipts minus £7,500 (or £3,750 in case of Joint owner). You cannot deduct any expenses or capital allowances if you choose this method.

Further, if you are going with Method - 2 then If you’ve made a loss, you can use them against your rental profits in future years to reduce the tax you have to pay. You can also use them against your gross receipts over £7,500 (or £3,750 in case of Joint owner).

For more information visit HMRC site