close menu

Your guide to the rent-a-room scheme

by John Dunn | Oct 23, 2014
  • Did you know that you can receive up to £4,250 per annum in tax-free income by renting out a furnished room in your home?
    Accounting

    The government’s rent-a-room scheme is designed to encourage people with spare rooms to take in lodgers. Here’s everything you need to know about how it works.

    Who qualifies?

    If you have a furnished spare room that you can rent out in your main or only home, you could qualify for the scheme. You don’t even have to be the owner of the home, as a tenant you can just as easily qualify by renting out a spare room. Just don’t forget to get the owner’s permission to do so.

    What is the income tax relief threshold?

    If the gross income on your rental – including money received for meals, drinks or laundry – adds up to less than £4,250, you won’t need to pay tax on any profits made. The relief applies to a tax year (for example 6 April 2014 to 5 April 2015) and the £4,250 threshold is reduced to £2,125 if anyone else receives income from letting accommodation in the same home, during the same tax year.

    Opting into the scheme

    If you earn less than £4,250 on your property, you don’t need to do anything because the exemption is automatic, but if you earn more than the threshold you will need to complete a tax return. There you can either choose to opt into the scheme and claim your tax-free allowance, or not opt in and rather just record your income and expenses under “property”. Either way is perfectly acceptable.

    Opting out of the scheme

    Once you have opted into the rent-a-room scheme, you can easily opt out. To do so, you must tell HMRC by 31 January of the same tax year, either in writing or via your tax return.

    What if you earn more than £4,250 from your rental?

    If your rent-a-room earnings exceed the limit, you have a choice of:

    • Paying tax on the actual profit from the property (calculated as income received, minus allowable expenses)
    • Paying tax on the gross income, less the tax-free threshold of £4,250

    Are there exceptions?

    You may not participate in the rent-a-room scheme if you are renting an unfurnished room, or by renting out a room to be used as an office or business space. The scheme also doesn’t apply if your home has been converted into two or more separate flats that you rent out.

    If you are thinking about renting out a room in your home and opting into the scheme, you can find out more on this HMRC helpsheet. Remember, it’s up to you to make sure you aren’t breaching the terms of your mortgage, lease or insurance contract. If you need advice or information, or for assistance with your tax return, visit www.1stcontact-accounting.com.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

    • Tax refund money
      11 excellent ways to spend your UK tax refund
      Apr 09, 2019  |  by Kobus Van den Bergh
    • London-business
      The UK still the best country for business in 2019
      Apr 04, 2019  |  by Scott Brown
    • Contractor choosing door
      Contractor insurance: Choosing the right cover for your risks
      Mar 12, 2019  |  by Kobus Van den Bergh
    • Making Tax Digital for VAT
      Making Tax Digital for VAT deadline: What you need to know before April 2019
      Feb 18, 2019  |  by Scott Brown
    • Businessman-running
      Did you overpay HMRC? Here’s how to get your tax refund
      Feb 07, 2019  |  by Kobus Van den Bergh
    • Business
      Will 2019 be a good year for UK contractors? IR35 and the loan charge
      Jan 24, 2019  |  by Ashley Deakin
    • Business-concept
      Moving your business to the UK? You’ll need to understand the UK’s VAT regulations
      Nov 12, 2018  |  by Scott Brown
    • Autumn-statement-banner-no-logo-white
      Highlights from the 2018 Autumn Statement
      Oct 30, 2018  |  by Scott Brown
    • man-in-front-of-shop
      A quick guide to UK business tax
      Oct 26, 2018  |  by Scott Brown
    • working-man-contractor
      Self-employment vs. contracting in the UK: What’s the difference?
      Oct 11, 2018  |  by Kobus Van den Bergh
     
     

    South Africa

    Cape Town

    Regent Square
    Doncaster Road
    Kenilworth 7708 +27 (0) 21 657 2120

    Durban

    25 Richefond Circle
    Ridgeside
    Umhlanga 4320 +27 (0) 31 536 8843

    United Kingdom

    Croydon

    One Croydon
    12-16 Addiscombe Road
    Croydon CR0 0XT +44 (0) 20 7759 7514

    Australia

    Melbourne

    9 Yarra Street
    South Yarra
    VIC 3141 +613 (0) 8651 4500

    Sable International is a trading name of 1st Contact Money Limited (company number 07070528), registered in England and Wales. We are authorised and regulated by the Financial Conduct Authority in the UK (FCA no. 517570), the Financial Services Conduct Authority in South Africa (1st Contact Money [PTY] Ltd - FSP no. 41900) and hold an Australian Financial Services Licence issued by ASIC to deal in foreign exchange (1st Contact Group - AFS Licence number 335 126).

    We use cookies to provide the best website experience for you. Using this website means that you agree to this. How we use cookies.