What is the 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. Although this threshold is halved to £3,750 if you share the income with someone else.
So, how does this work? Well the tax exemption is automatic if you earn less than your threshold, this means that you shouldn't need to do anything.
But, if you earn more than the threshold you must complete a tax return, you will then need to opt into the scheme to claim your tax-free allowance. If you choose not to opt in you will need to record your income and expenses on the property page of your tax return.
Can you use the scheme?
You are eligible to use the scheme if:
you let a furnished room to a lodger.
your letting activities constitutes a trade, for example, running a guest house or bed and breakfast business.
You can't use the scheme if the accommodation is:
not part of your main house when you let it.
not furnished.
used for business or as an office. (Although there are certain exceptions)
letting your home when living abroad.
What if you made a loss?
If you've made a loss when renting a room in your home, it may be better for you to pay tax in the normal way. That is on your receipts less expenses.
Please note, you will need to tell HMRC that you want to do this.
Time Limits!
You must let HMRC know within one year of 31st January following the end of the tax year if you:
do not want to use the Rent-a-Room Scheme when your receipts are below £7,500 (or £3,750.) This is important, if you want to claim losses.
want to start or stop paying tax on the gross receipts over the scheme's limit.
Few Things to Remember
There are a few things you need to remember when you're considering a Rent a Room Scheme.
1. You are responsible for the Council Tax liability. Please check your local council's rules on council tax.
2. You are responsible for the utility bills, although you can recharge part of this to the tenant please check the Ofgem rules for the resale of gas and electricity here.
3. Income Tax is payable on all rental income you receive over the £7,500 (or £3,750) limit. Your expenses are not included in your tax calculation.
4. If you rent to 2 or more people you may be classed as a House of Multiple Occupation, if this might apply to you check the rules here.
If you need more information.
If you need any tax advice in Milton Keynes give a call to the team at Holmes Accountancy on 01908 315716 or contact us here.
The tax tip is provided for general guidance only; further advice should be sought, for specific issues.
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