Rent a room relief scheme in you house
The rent a room relief scheme allows owner occupiers and tenants to receive tax free rental income if you provide furnished room in your main home.
You can rent a room in your house and earn up to £7500 income tax free for the tax year 2016/17, it used to be £4,250 for 2015/16. So as long as the rent is within the threshold then you don’t need to do anything. However if the rental income gross receipts are above the threshold then you have two options in dealing with income.
- You pay tax on your actual profit that is total receipts less expenses and capital allowances.
- You pay tax on your gross receipts over the rent room relief scheme.
In order to be able to use the rent a room scheme which you can join at any time you must be a resident landlord whether you own the property or not. The room is furnished.
By using the scheme you can only claim the relief against the rental income and nothing else.ie Total rental income less the allowance which is £7500 for 16/17 tax year and you pay tax above the difference.
You can’t use the rent a room scheme if the accommodation is
- Not part of the house
- Not furnished
- Used as an office or business
- The room is let while you live abroad
- You have rented the whole home not part of it.
If you opt out of the scheme then you can claim an apportionment of the expenses against the rental income such as.
Repairs but not improvements
You can change between each method from year to year, but you need to decide which method you are going to use and tell HMRC within the time limit.
Issues you may need to consider:
- Your Lodger rights:
If your lodger is sharing the house with you such as kitchen and bathroom then this is known as Excluded lodger occupier and in this case a reasonable notice is given in order to evict the lodger. However if the lodger is not within the house and not using or sharing the home facility then the lodger has a basic protection and you must apply to the court in order to evict them.
- Capital gain tax:
You may end up paying capital gain tax if you have let out all or part of your property, and have taken more than one tenant at a time. However you may be entitled to private residence relief and letting relief.
- You can’t use losses with rent a room scheme if you made any, however if you want to use loss you must tell HMRC that you want to pay tax on your income less expenses. Method A
If you require further help with the rent a room scheme or property on rent please get in touch and we will be able to help you out with any tax issues.