New announcement. Learn more

CHARTERED ACCOUNTANTS (ICAEW)

News and advice to help make your property business a success

Landlords TaxProperty TaxLandlords Tax ReturnsLandlords AccountsProperty Tax ReturnProperty AccountsLandlords FinancialTax ReturnsLandlords AccountantChartered AccountantsOnline AccountantOnline BookkeepingOnline Tax ReturnsTaxYour Online AccountantYour Online BookkeeperBusinessadviceAccountingVATCashflowProperty AccountantSmallbusinessBusinesstipsCapital Gains TaxExpensesInheritance TaxPropertySDLTTaxplanningCgtDividendsFurnished Holiday LettingsIhtexemptionsPAYEProperty bookkeeperTaxreturnAllowable Business ExpensesAnnual Exempt AmountBusiness ExpensesBusiness RateCapital AllowancesCapital GainsCapital gains tax propertyCashbasisComplianceDeductibleexpensesDisincorporationEmployment AllowanceFinanceFinancialmanagementGiftsHMRCHoliday Lets TaxIncome TaxInvestment Property TaxMaking Tax DigitalMakingTaxDigitalMileage AllowanceMobilephonesNICOverlapreliefPartnershipPartnershipbusinessesPensionPprProperty Company TaxProperty Tax Deductible ExpensesPropertyallowanceReimbursedexpensesRent a Room ReliefResidence ReliefSmall BusinessTax free incomeTimetoPayVAT invoice60 day capital gains limitAbolitionclass2AccrualsbasisAcquisitionsAdvisoryfuelratesAIAirBnBAlphabet sharesAmapAnnual Tax on Enveloped DwellingsAppealArtificial intelligenceAssessmentAsset disposalAssociated CompanyAssociated Company Tax RulesAutumnstatementBad DebtBad Debt Tax ReliefBaddebtsBadgesoftradeBeancounterBenefits in KindBreakeven PointBudgetBusiness adviceBusiness asset defermentBusiness coachBusiness ContinuityBusiness EntertainmentBusiness RatesBusiness Rates ReliefBusiness tipsBusinessgrowthBusinesstypesBuy or Lease EquipmentBuytoletCapital Allowances for CarsCapital GainCapitalallowancesCapitalexpenditureCar Capital AllowancesCarry Back LossesChange of Tax BasisChatGPTChild BenefitCIS SchemeCommon TenantCompanies ExpenditureCompanies HouseCompany Account DeadlinesCompany Account FilingCompany Strike OffCompany Tax Efficient PropertyCompanyassociationCompanyloanstaxfreeCompulsory Strike OffConstruction Industry SchemeContacthmrcContentmarketingContributionsCorporation Tax LossesCorporation Tax New RegimeCorporation Tax RatesCorporationTaxCostsCryptocurrencyCustomerlistimplicationsDeductible Business ExpensesDeductionsDemergerDepreciationDevelopmentDirectorsDirectors LoansDirectorsloansDisallowable Business ExpensesDiscoveryDividend allowanceDividend Allowance ReductionDividend PlanningDividendallowanceDLADomestic Items Tax ReliefDormantcompanyEmployee DiscountEmployee managementEmployeecompensationpaymentsEmployeeOwnershipTrustEndoflifeplanningEnquiryEnterpriseResourcePlanningEntertainmentEntrepreneurmindsetEquityExpenses Allowed For TaxExtrabenefitEyetestsFHLsFlippingFurnished Holiday Lets TaxGift AidGift AllowanceGrowthhacksHelp to pay tax billsHICBCHMO Licensing FeesHMRC complaintsHoldoverreliefHoliday Lettings TaxHow to apply for a Business LoanHow to Extract ProfitHumourHybridIllegaldividendsIncomeInflationary GainsInfluencersInheritance Tax Nil Rate BandInterest RatesInterestreliefInterestrestrictionISAJoint TenantKeypersoninsuranceLandlord RepairsLandlords Self AssessmentLate vat registrationLBTTLeadgenerationLeadmagnetLeanbusinessmodelLetting Agent DisbursementsLetting Agent RecharresLettingsLettings ReliefLimitedcompanyLiquidation DemergerLoaninterestLong Lets TaxLongserviceLTTMainresidencereliefManaged LetsManagement accountingMaritalhomedivorceMarriage allowanceMarriageallowanceMileage paymentMinimumwageMixedusesdltMortgage costsMortgage Interest ReliefNational InsuranceNew propertyNewcompanycarfuelratesNewnicrulesNIC 2023 to 2024NIC savingsNicdisregardNicreductionNMWNmwerrorsNon Allowable Business ExpensesNon-taxableNudgeletterOptiontotaxvatOverpayment ReliefPaperformParttimePatternofoccupancyPAYE by Direct DebitPayrollingPenaltypointsPension Payments Tax ReliefPensioncontributionsPensionsPerformance-reviewsPeriodofgracePeriodsofabsencePersonal ExpensesPersonal financePersonalallowancePersonalguaranteesPostcessationreliefPretradingexpensesProfitProfit-and-lossProfitAndLossProperty AllowanceProperty Development CompanyProperty IncorporationProperty Investment CompanyProperty investor accountsProperty investor tax tipsProperty LettingProperty Rental BusinessProperty TradingPropertycompanyRecharges by Estate AgentsRegularpaymentsReliefRent your driveRentalRentaroomResearch & DevolopmentResidential property gainsResidentialsdltRetail stock controlRetainedprofitsRevenueRoom for rent taxRtiSASalarySavingsSDLT changesSection 455 TaxSection455taxSelective Licences LandlordsSelf AssessmentSelf-employednicSelfemployedSelling OnlineSeperationServicechargesSettlementslegislationSimplified ExpensesSmallbizSmallbusinessratereliefSoftwareSpring BudgetStaffpartiesStamp dutySuccessJourneyTax Allowance on DrivewaysTax AllowancesTax BreakTax CodesTax DeadlinesTax DeductionsTax Filing DeadlinesTax Free ChildcareTax on Company VansTax positionTax ReliefTax tips for landlordsTaxbillpaymentsTaxconsequencesTaxincentivesTaxpositionTaxpositionassetsTaxreliefTaxreliefsTaxsesTerminationpaymentsTipsTrade professionalTrainingTransfer AssetsTransfer Assets Between SpousesUmbrellacompanyUndisclosedincomeUnpaid RentVAT Bad Debt ReliefVAT DeadlinesVAT DisbursementsVAT PenaltiesVAT registrationVAT Reverse ChargeVatpenaltiesVatregisteredVatregistrationthresholdWellbeingWorking from home
TAGS

Enjoy £7,500 of tax-free income under the rent-a-room scheme

Enjoy £7,500 of tax-free income under the rent-a-room scheme

If you have a spare room in your home, you may consider letting it out to raise some much-needed cash to help meet rising living costs. If you do decide to do this, the rent-a-room scheme means that you may be able to enjoy the associated rental income tax-free. The scheme applies where you let out furnished accommodation in your own home.

Automatic exemption

If you earn less than £7,500 from renting out one or more furnished rooms in your own home, the exemption applies automatically. You do not need to tell HMRC about the income or include it on your tax return.

If the income is received by more than one person, each person can enjoy £3,750 tax-free under the scheme, regardless of how many people receive the income. For example, if a property is owned by three people and they let out two furnished rooms, each can receive £3,750 tax-free – a total of £11,250.

Income exceeds £7,500

If the rental income exceeds the tax-free limit of either £7,500 or £3,750 as appropriate, under the scheme, a person can choose to work out the taxable amount by deducting the tax-free amount rather than the actual expenses. For example, if a person lets out furnished rooms in their own home and receives rental income of £10,000, they could opt to use the scheme and deduct the tax-free amount of £7,500 to arrive at a taxable profit of £2,500.

This will be beneficial where the tax-free limit is more than the associated expenses. If expenses exceed the rent-a-room limit, or the taxpayer would realise a loss, it is more beneficial to calculate the profit in the usual way (rental income minus deductible expenses).

The taxpayer will need to complete a tax return and opt to use the rent-a-room scheme.

Do the sums

Using the rent-a-room scheme will not always give the best outcome, even if rental profits are below £7,500. If using the normal calculation method would result in a loss, it is better to take the loss so that it is available in the future to set against any future taxable profits.

You can choose each year whether to use the scheme or not. If you change the basis, you must tell HMRC by the tax return filing date of 31 January after the end of the tax year. This can be done in your tax return.