We have just saved a client £850 in tax by amending a tax return he had submitted without claiming the rent-a-room relief.
Here follows a brief expanation of this very valuable relief.
Under rent-a-room a taxpayer can be exempt from Income Tax on profits from furnished accommodation in their only or main home if the gross receipts they get (that is, before expenses) are £4,250 or less. In addition, receipts over the £4,250 exemption limit can be taxed on an alternative basis that may produce a lower tax bill. Briefly, the excess of the gross receipts over the exemption limit is treated as the taxable rental income instead of the actual profit. But they can’t then claim any of the expenses of the letting.
For the purposes of the rent-a-room scheme, gross receipts include not only rents but also payments made to the taxpayer for the provision of any other goods or services (such as meals, cleaning, laundry etc) in connection with the letting.
The rent-a-room scheme applies to ordinary lettings of living accommodation in the taxpayer’s own home. It does not apply to rooms let as an office or for other business purposes,
Where a taxpayer has taxable receipts after rent-a-room has applied, they are normally taxable as property income together with the rest of their rental business income (if they have any). In some cases, income from a lodger etc may be taxed separately as a trade (see below).
Rent-a-room applies to people who let a room in a home they rent as well as to people who own their homes.