What is ‘The Rent a Room Scheme’ and how can it help you?

The Rent a Room Scheme gives you a tax-free allowance of £7,500 if you let out a part of your home that you also live in.

  • You can claim this allowance even if you don’t own the property, but you can live there full-time
  • If you jointly own the property, you can split the allowance in half
  • If you earn less than £7,500 in rental income, you don’t need to pay tax on it

You’ll need to submit a self-assessment tax return if your rental income is more than £7,500 but good news – you can still claim the allowance.

Am I eligible?

Yes, if:

  • You’re a “resident landlord” – this means that you also live there (it doesn’t matter if you own the property or not)
  • The room is furnished
  • You run a bed and breakfast or guest house

What if I share a jointly owned property with my spouse?

Simple:

  • Each gets half of the ‘Rent a Room’ allowance (£3,750)
  • But that’s okay, each of you pays tax on half the income from rent anyway

What if I rent out a room through Airbnb?

Yes – as long as you live there (at least most of the time), then you can use this allowance for Airbnb as well.

What if my rental income is less than the ‘Rent a Room’ limit?

In this case that income is automatically tax free – you don’t need to do anything.

What if I earn more than the limit?

HMRC lets you choose between:

  • Method A: you pay tax on the actual profit – rent minus expenses and capital allowances
  • Method B: you pay tax on what you earn over the ‘Rent a Room’ limit

In both cases you’ll need to submit a self assessment tax return.

What you should know:

  • HMRC will automatically use Method A
  • If you want to use Method B, you need to tell HMRC
  • You can switch from year to year
  • If you use Method B, you cannot deduct any expenses or capital allowances
  • If you use Method B, it automatically stops if your rental income drops below the ‘Rent a Room’ limit

What if I made a loss this year?

You normally can’t claim a loss if you use the ‘Rent a Room’ scheme. However, there is a workaround:

  • This year tell HMRC that you want to pay tax using Method A
  • Next year switch to the ‘Rent a Room’ scheme
  • Then you can use the loss from this year to reduce your tax on what you earn over the £7,500 threshold

What to do next?

If you’d like to discuss the ‘Rent a Room’ scheme in more detail, our expert accountants are on hand to help you – you can book in a free consultation with one of our team today! Our accountancy services are available nationwide, including: Accrington, Bamber Bridge, Buckshaw Village, Blackburn, Burnley, Chorley, Colne, Clitheroe, Darwen, Hurst Green, Lancaster, Lostock Hall, Longridge, Leyland, Penwortham, Preston, Skipton and the surrounding areas.

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