A tax-free ‘gross’ income from renting furnished accommodation

The Rent a Room scheme allows homeowners and tenants to take in a lodger and get up to £4,250 in rent without paying tax. The scheme allows tax-free ‘gross’ income (what you get before expenses) from renting furnished accommodation.

 

People can opt to use Rent a Room if they let furnished accommodation in their only or family home to a lodger. You do not have to be a homeowner, it is also possible to take in a lodger and use Rent a Room if you rent, although you should get the landlord’s permission.

Homes that qualify must be the home where you/your family live for most of the time, not a separate buy-to-let property or holiday home, for example. A lodger is considered someone who pays to live in your home and who often shares the family rooms.

Rent a Room relief is £4,250 for an individual homeowner, but you cannot double up the relief, so it is up to £2,125 for joint homeowners. It only applies to furnished accommodation. If you provide any services or make extra charges, for example for meals and laundry, then if that pushes the amount you are paid above £4,250 you must pay tax above the threshold.

Lodgers can occupy a single room or an entire floor of your home. However, the scheme does not apply if your home is converted into separate flats that you rent out. In this case you will need to declare your rental income to HM Revenue & Customs (HMRC) and pay tax in the normal way.

If you are in the Rent a Room scheme you can’t claim any expenses relating to the letting (for example, wear and tear, insurance, repairs, heating and lighting). If you do not join the scheme, after you have subtracted these you should pay income tax on the remainder of the rent paid to you.

Bed and breakfast businesses and guest houses can also use the Rent a Room scheme. They must complete the relevant parts of the Self Assessment tax return.

If you don’t normally complete a tax return and rent and payments are below the tax-free thresholds, the tax exemption is automatic so you don’t need to do anything if you receive rent and payments above the threshold, you must tell your tax office by completing a tax return.