Since April 2016, the amount of tax-free income you can earn from letting a room in your home has increased to £7,500 per annum, or £3,750 if two persons own a property jointly.
You can use the scheme if:
- you let a furnished room to a lodger
- your letting activity amounts to a trade, for example, if you run a guest house or bed and breakfast business, or provide services, such as meals and cleaning
You can’t use the Rent-a-Room Scheme if:
- not part of your main home when you let it
- not furnished
- used as an office or for any business – you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities
- in your UK home and is let while you live abroad
If your gross receipts from letting aren’t more than the Rent-a-Room limit of £7,500 (or £3,750 if jointly owned), you don’t pay tax on your profit. If they’re more than the limit, you may still be able to benefit under the Rent-a-Room Scheme.
Gross receipts include:
- rental income (before expenses)
- any amounts you receive for meals, goods and services, such as cleaning or laundry
- any balancing charges
If your gross receipts are less than £7,500 (or £3,750), you are automatically exempt from tax on that income.
If you’ve made a loss, however, it may be better for you to pay tax in the normal way – that is, on your receipts less expenses.
If your gross receipts are more than £7,500 (or £3,750), you can choose how you want to work out your tax. It can be the actual profit made (rents less expenses) or the gross rents received less the £7,500 (£3,750) allowance; whichever produces the better result.