Rent a Room Scheme

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The rent a room scheme is an gives landlords an opportunity to earn £7,500 before paying tax. A landlord can be eligible by offering furnished accommodation in their personal home.

Rent a Room Scheme: room for rent sign

How does it work

For income £7,500 or less or, £3,250 if in shared ownership, then the tax exemption applies automatically. If the landlord passes the £7,500 threshold, they are required to file a tax return. They have the option to join the rent a room scheme.

Eligibility

A landlord or home owner can participate in the scheme if;
They are the owners of a home even if they do not currently live there.
They manage a property is a guesthouse, or the land lord provides hospitality services and cleaning.
The landlord can be eligible if, as long as they can offer a guest furnished accommodation.

If the room being rent is not in the landlords main home they will not be eligible.
Also, the property where the room is being rented must not be used for other commercial properties except serviced accommodation or for some hospitality purposes. For example, if the property is also used as an office the landlord will not be eligible for the rent a room scheme. However, the tenant may be able to use the property for some commercial purposes, such as if they work from home on weekends.

Letting a room

If the landlords income on the room is less than the £7,500 threshold they do not need to pay tax, or £3750 if co-owning. If you are a landlord and the income on the rent is above the £7,500 threshold they may still be eligible, however the need to declare and pay the tax on earnings above the threshold.

Normally, you count your gross income for one fiscal year, i.e. April 6 from one year to April 5 of next year. If your installation activity is business-like, your gross revenues for the start-up phase will be accounted for.

The advantages and disadvantages of the Rent a Room Scheme.

The advantage is that the first £7,500 is tax free. However, this needs to be weighed up against other costs. For example, not all repair costs, or costs to furnish the room can be claimed back. So the landlord may have to pay extra costs to be able to be eligible or to ensure that the room being rented is maintained.
If the property has a mortgage, then the landlord may have to consult with the mortgage lender, to ensure there are no conflicting terms.

The landlord should also clarify their insurance terms with their insurance provider. If their policy does not cover the tenant, or if the policy does not cover other aspects of the scheme then the landlord may be refused a claim should the landlord need to make a claim.

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