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Rent a Room in your own home

Tax Personal Tax

The Rent a room scheme allows you to earn up to £7,500  per tax year tax free from letting out furnished residential accommodation in your UK home. If you jointly own your home the limit is split between the owners.

The tax exemption is automatic so if your rental income is less than the £7,500 you don’t need to do anything – no need to complete a tax return unless you have other reasons to do so.

If your rental income is more than the £7,500 limit then you must complete a tax return and you have 2 options:

  • claim the tax-free allowance without deducting any expenditure leaving the balance taxable OR
  • you can choose not to claim it and pay tax on your rental income less allowable expenditure. This will only be beneficial if your allowable expenditure exceeds £7,500 free of tax is fantastic BUT there are other things you need to consider:
  • If you have a mortgage on your home – you need to check your mortgage lender is happy for you to rent out part of your home
  • Household insurance – you need to check your policy is not invalidated by renting out part of your home, you may need to amend your policy
  • Lodger’s Rights – how you share your home with a lodger affects the rights they have and how you can end their tenancy. If you share living space with them eg kitchen, bathroom etc then you probably only need give reasonable notice and won’t need a court order to evict. If you don’t share living space with them then if they won’t leave when asked you would need a court order to evict. Always obtain legal advice
  • Utility Bills – consider how you will deal with the lodgers use of utilities
  • Capital Gains Tax on sale of home – discuss with your adviser whether your Capital gains tax position will be affected by having 1 or more lodgers.
  • If you yourself rent your home you need to check if you are allowed to sub-let part of your home
  • Providing meals and services – you might want to charge extra for provision of meals and services such as laundry. Any income you receive must be added to the rent to work out your total income in relation to the £7,500 exemption.
  • If you run a B&B or guest house you can still take part in the scheme
  • Record keeping – it is important to keep records of all income and expenses.

If you are thinking of renting out part of your home speak to your Tax Adviser first