Rent a Room Scheme – Earn up to £7,500 pa tax free!

Resident landlords can also earn up to £7,500 per year tax-free under the Rent a Room Scheme (figures correct as of Jan ’19).

If you rent part of a property which is your only or main home you are considered a resident landlord, and are eligible for Rent a Room relief.

There are certain rules, and you can’t use the scheme for homes converted into separate flats or if the accommodation being let is not part of your main home, is unfurnished or is being let as an office for any business.

From April 2019 a new rule will apply to rent a room relief. The landlord must live in the property at the same time as their tenant for at least some of the letting period. The current rules make relief available when the taxpayer lets out their whole home whilst on holiday, for example, but that would no longer qualify.

If you are renting a self-contained flat in your only or main residence, you will only be eligible for Rent a Room relief provided that the division of the residence into a self-contained unit is only temporary.

As with any sort of rental, you should always obtain references before signing any agreement.

If you don’t own the property you live in, you’ll need your landlord’s permission to sub let. If you’re letting your own home, you’ll need permission from your mortgage provider. In either case, you’ll need to check with your insurer that you are sufficiently covered to rent a room.

The Rent a Room Scheme allows you to earn up to a threshold of £7,500 per year tax-free. If you share the income with your partner or someone else, this is halved.

The tax exemption is automatic if you earn less than the threshold and you don’t need to do anything.

If you earn more than the threshold you must complete a tax return and opt in to the scheme to claim your tax-free allowance.

You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return.

Your property may be classed as an House in Multiple Occupation (HMO) if you let rooms to more than 2 people. There are extra safety requirements and standards for HMOs and you’ll often need a licence – you should speak with your local Council for more information if you think this could apply to you.

Resident landlords are not legally required to protect tenants’ deposit with one of the government-approved schemes and are not required to give as much notice to tenants as landlords who let whole properties.

If you stop living in the property as your only or main home, you will cease being a resident landlord. Your tenant can stay on in the property, but the type of tenancy they hold will be different and you should sign a new tenancy agreement with them – this is likely to be an assured shorthold tenancy.

For more information, click here.


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