Rent a room relief
In this week’s article we will look at rent a room relief. What the relief is and how it can potentially save you both time and money.
What is rent a room relief?
Rent a room relief is a tax relief that is available to landlords who rent out a room in their home to a tenant.
It is only available to landlords who rent out a room in their main home. The property where the landlord actually lives. The landlord cannot claim the relief on a separate property that they own but do not actually occupy.
If a landlord does qualify for the scheme, they have two options on how they can calculate their taxable profits.
The first option is, they can calculate the rental income less any deductible expenses in the normal way.
The problem with this is that it may be difficult to calculate and apportion any deductible expenses in a property where the landlord is also living.
The second option is, the landlord can use the rent a room relief.
How does it work?
The purpose of the scheme is to provide simplicity and tax savings to encourage people to rent out a room in their home to create more housing.
Under the scheme, the first £7,500 of rental income per annum is tax free or exempt.
This allows individuals to earn an additional £7,500 per year without suffering any taxes.
Better still, where gross income from the rent is £7,500 or less, this means that there is no calculation to be done. Which also means that the landlord does not need to report this to HMRC. Again saving both time and money completing a tax return.
Where the gross rent received is greater than £7,500, the landlord can either deduct a flat rate expense of £7,500 or opt to deduct the allowable expenses in the usual way.
It is important to note that rent a room relief cannot generate a loss. It can only reduce taxable profits to zero. So if the gross rental income was say £6,000 for example, only £6,000 of relief would be available.
It applies to the property
An important point to note, and where people often get confused, is that the relief applies to the property.
It does not apply to a tenant.
Therefore, if the landlord lets out two rooms in their home to two different tenants, the landlord will still only benefit from one relief of £7,500.
The relief does not increase depending on the number of tenats.
The tax exemption of £7,500 is split in two in cases where there are joint owners.
So each owner will receive £3,750 of relief as opposed to the full £7,500.
HMRC help sheet - Rent a room relief
HMRC have put together a very good help sheet for landlords which can be found on the gov.uk. A link to which is below.
We hope that you found this article useful. If you have any questions about the scheme, please do get in touch.