Rent a Room relief is an optional scheme that allows you an income up to £7,500 a year, tax-free. It applies when you rent out furnished accommodation to a lodger in your own home and you are also living in the accommodation for at least some of the time that the accommodation is let. 

You can both rent out your own property or shared property. If you are letting out jointly, the amount becomes £3,750 and reduces proportionally according to the amount of people owning the home. 

What are the eligibility criterias?

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

   * you’re a resident landlord, whether or not you own your home

   * your letting activity amounts to a trade, for example, if you: run a guest house, run a bed and breakfast business or provide services, such as meals and cleaning

Note: You cannot use the scheme for homes converted into separate flats. Also, you need to live in the property to get the allowance - if you don t live there, you won t be able to benefit from it.

When can you not use the Rent a Room Scheme?

You are not eligible to use the scheme if the accommodation is:

   * not part of your main home when you let it to lodger 

   * not furnished

   * in your UK home and is let while you live abroad

   * used for business purposes or used as an office

-Note: you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities.

How can I claim the Rent A Room Relief?

For Rental Income below £7,500 per year: When your rental profit for a tax year is below £7,500, then you will be automatically exempt from paying income tax without doing anything.

For Rental Income above £7,500 per year: When your rental profit for a tax year is more than £7,500, then you need to complete a tax return. Under the circumstances, you get to choose to claim the relief and pay income tax on the excess rent or you can choose to pay income tax on your rental profit - on the amount of the rent received after deducting any allowable rental expenses.

Accountants in London can help you complete a tax return and help you with any further query. 

How much can I earn? 

For the tax year 2019 to 2020, in the UK, the annual Rent a Room limit is £7,500 and it is the same even if you let accommodation for less than 12 months.

As an individual, you can make up to £7,500, in case of sharing the income from the property with someone else, you can only claim up to £3,750 each.  

The income limit covers your tenants as part of the rental service and if you charge them for cleaning, meals or laundry you ll need to count these fees too. Meaning, you won t be able to deduct any expenses from your rental income if you use the rent-a-room scheme. 

Opting in or out of the scheme

When you earn more than the threshold of £7,500, you must complete a tax return, as mentioned above. You can then do one of the following:

   a) Choose to opt into the scheme:  In this case, you need to let HM Revenue & Customs know this on your tax return and claim your tax-free allowance.

   b) Not opt into it: In this case, you simply record your income and any associated expenses on the property pages of your tax return.

To ask to be sent a tax return if you don’t usually receive one, contact HM Revenue & Customs. You can contact reliable London Accountants to help you out.  

Contact Taj Accountants

We provide a wide range of consultancy services to businesses and individuals. Our team of Small Business Accountants help our clients solve financial issues and ensure financial health. Contact us to for any financial 

FAQs: 

Does the Rent a Room Relief option apply if I rent out my home and I live abroad?

In this case, you are not qualified. In order to qualify in this option, the residence in which the accommodation is being used must be the renters main residence.   

DISCLAIMER: The purpose of the blog is to provide information and insight regarding the situation. The readers must contact experts before making any decisions based on the information. We highly appreciate you to contact Taj Accountants for further assistance.