Rent a Room Scheme
From 6 April 2016 the Rent a Room Scheme enables you to acquire an income of up to £7,500 per annum free of tax. When you have a room or rooms to rent in your furnished property you will have the ability to take full advantage of the Rent a Room Scheme.
How does it work?
In the event that you are letting a room in your own residence to lodgers, you can benefit from the Rent a Room Scheme. As long as you generate up to £7,500 per year, you will be automatically exempt from paying tax. However, if you go above the threshold, you must file a tax return to HMRC. Please note that only furnished rooms qualify for the relief. Unfurnished rooms are not eligible. The Rent a Room Scheme cannot be used to rooms let as an office or other business purposes. Should you be a tenant and would like to take in a lodger, you should check you tenancy agreement whether you are allowed to do so.
How to qualify
Should the sum you generate through leasing out a room is lower than the threshold of the Rent a Room Scheme, subsequently you tax exemption is immediate and you don’t have to do anything. However, if you go above the threshold, you will have to complete a tax return and choose to subscribe to the scheme to claim your tax-free allowance. The Rent a Room Scheme could only be applicable in the event that the lodging is the actual residence of the tax payer. Consequently, the tax-payer will not benefit from the scheme if the accommodation is not their main residence.
Advantages and Disadvantages
Arguably the biggest advantage of the Rent a Room Scheme is the possibility of earning up to £7,500 per annum free of tax. However, you won’t be able to claim any expenses related to the lease. You will have to unsubscribe from the scheme to be able to deduct expenses. The best thing to do is to determine whether you will be better off with or without the Rent a Room Scheme. You might desire to impose a fee for extra services whenever you have a lodger, for instance by supplying dinner or doing washing up. The funds you obtain for such services have to be included with the rent to sort out your overall revenue. In case the revenue is greater than the threshold, and is more than your Personal allowance, you will certainly have to pay tax.
Tenancy Deposit Scheme
Exclusion of Liability and Disclaimer
The material contained on this website is set out in good faith for general guidance and no liability can be accepted for loss or expense incurred as a result of relying in particular circumstances on statements made on this website. While every effort has been made to ensure that this website provides guidance, it is impossible to predict all the circumstances in which it may be used. Accordingly, readers should check current laws and regulations before making any personal arrangements.