Rent a Room relief

Her Majesty’s Revenue and Customs requires individuals to make tax contributions on income earned on renting out their own property. If an individual’s rental income is generated by renting out any space between a single room, multiple rooms, or an entire floor located within their own main residence, they can claim a tax free allowance against the rental income generated from that rental by adopting the ‘rent a room scheme’. This tax free allowance is called ‘rent a room relief’.

Rent a room relief was first introduced in 1929. This relief is only available for individuals, companies and partnerships are excluded from this scheme. It is claimed against rental income when an individual chooses to let a furnished room or an entire floor in their main residence. In order to qualify for this relief they don’t have to be a home owner, tenants renting and living in a house can rent a room in their rented house (if allowed in their rental agreement) and claim rent a room relief on their rental income. In order for a tenant to qualify for the rent-a-room relief the tenant must be using the area as living accommodation. The exemption will not apply where a tenant is renting a room to use as an office or a place to study, for example, but is not living there.

Broadly speaking the rent a room scheme is an optional scheme that allows owner occupiers or tenants to earn £7,500 (From April 2016) tax free in each tax year or £3,750 if it is let jointly. An individual automatically gets an exemption when their rental income is less than £7,500 but if an individual’s rental income is more than £7,500 then they can opt into this scheme depending upon their preference when doing their tax return.