What is the Rent a Room Scheme?

The rent a room scheme is open to people who want to let out furnished accommodation to a lodger in there main home.

Rent a room is available to owner occupiers and tenants who have permission from their landlord to rent out a spare room.

One big benefit of the rent a room scheme is that you can earn up to £7500 in rent per year tax free or if let jointly £3750.

We explain the rules around the rent a room scheme and the tax requirements for income from renting a room under the scheme.

What are the Rent a Room Scheme rules?

The scheme let’s you rent out as much of your property as you wish but the accommodation must be made available as furnished.

If you run a bed and breakfast or guest house business you can use the rent a room scheme.

The rent a room scheme is not available if:

• Your property is not furnished.
• The room let is not part of your main home.
• The room let is used for business purposes or only as an office.
• Your room is let while you are living outside the UK.

How do I apply for the Rent a Room Scheme?

The rent a room scheme gives you an automatic exemption from tax if you don’t earn over the rent a room scheme thresholds of £7500 (or £3750 for jointly let properties) per year.

Rent a Room Scheme income under the threshold:

If the rental income from your room is less than the threshold you don’t need to take any action which includes telling HMRC.

Rent a Room Scheme income over the threshold:

If the income from your room is above the threshold you need to complete a self assessment tax return.

You let HMRC know if you want to be part of the rent a room scheme when you complete your tax return.

• There is an option on the tax return to claim the rent a room scheme tax free allowance.

Or

• You can declare your rental income on the property pages of your return in the same way as any other landlord with rental income.

Is Rent a Room Scheme income tax free?

The government allows you to earn £7500 from renting a room tax free. The £7500 rent a room tax free threshold is given per tax year which starts on the 6 April and ends on 5 April the following year.

If you jointly own or rent a property with someone else the rent a room tax free allowance is equally split giving a £3750 allowance to each partner.

Rent a Room Scheme and Self Assessment tax returns

HMRC needs you to tell them if you make more than the rent a room tax free thresholds and you don’t already complete a self assessment tax return.

Making more income than the thresholds will mean you need to declare the rental income on a tax return which HMRC will open up for you when you let them know about your rent a room income.

If you already complete a self assessment tax return you can opt in (or out) to the rent a room scheme when you complete your tax return.

Should I claim the Rent a Room Scheme allowance on my tax return?

Claiming the rent a room scheme allowance on your tax return is optional with the benefits of claiming the allowance needing to be compared with declaring your rental income in the normal way.

The two options to declaring your rent a room income are:

A. Pay tax on your total gross rental income less the rent a room tax free threshold.

B. Pay tax on your profit from rental income and not use the rent a room tax free threshold (like any other landlord).

In simple terms if your allowable property income expenses are less than the rent a room threshold it will generally be more tax efficient to choose option A. With this option you don’t use any property expenses in your calculations.

If your property expenses are higher in value than the rent a room scheme tax free threshold it would typically be more beneficial to go with option B.