Rent a room exemption increases to £7,500 from 6 April 2016

This generous relief is often overlooked, but will be of interest to anyone with long term lodgers, small bed and breakfast businesses, and the more recent phenomenon of short term hosting in your home sourced from online sites such as Airbnb.

The £7,500 is an exemption so if your gross receipts from letting a room (or rooms) in your home is less than this amount no income tax arises. The exemption is halved to £3,750 if your are a joint owner of the property and share the rent.

If your gross receipts from your home are higher than the £7,500 exemption you can either declare the actual profit after expenses on your tax return or you can instead ignore your actual expenses and deduct the £7,500 exemption from your gross receipts. You can choose whichever provides you with the best result i.e. the lowest tax bill.

You cannot create a loss using the exemption so if you do make a actual loss in the year you are better to claim this loss so that it can be offset later against future rental profits.

You can use the Rent a Room Scheme if:

  • you let a furnished room to a lodger
  • your letting activity amounts to a trade, e.g. if you run a guest house or bed and breakfast business.

You can’t use the Rent a Room Scheme if the accommodation provided is:

  • 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
  • the whole of your home, rather than a part of it.

If you would like more details of the Rent a Room Scheme please get in touch.