The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home. The limit increased to a generous £7,500 from 6 April 2016, after remaining stagnant for many years and has remained at the same level for the current tax year.
The relief applies only to the letting of furnished accommodation and is usually used when one bedroom is rented out in a furnished house to a lodger and is becoming more widely used as more and more people rent out rooms online. The relief also simplifies the tax and administrative burden for those with rent-a-room income up to £7,500. The limit is reduced by half if the income from letting accommodation in the same property is shared by a joint owner of the property.
The rent-a-room limit includes any amounts received for meals, goods and services provided, such as cleaning or laundry.
Planning note: If gross receipts are more than the limit, taxpayers can choose between paying tax on the actual profit (gross rents minus actual expenses and capital allowances) or the gross receipts (and any balancing charges) minus the allowance – with no deduction for expenses or capital allowances. Please call if you would like our help with making these calculations.