Tax free home rentals

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.

Latest Blog
21
Jun

When is a car a van

There are advantages for tax purposes if the vehicle you buy for your business is con...

Read More
19
Jun

How deep are your pockets

Next month, those of us who are still self-employed will be digging deep to pay our s...

Read More
14
Jun

The Maternity Allowance

Women who find that they are not eligible to claim Statutory Maternity Pay may nevert...

Read More
13
Jun

Construction sector VAT shakeup

Government are considering an extension of the VAT reverse charge to include the cons...

Read More

CONTACT SIMON COOPER