The Rent a Room relief provides resident landlords with a beneficial tax allowance. It allows you to earn rental income up to £7,500 per year from a lodger, tax-free. This scheme simplifies the tax process for individuals renting out a room in their primary residence.
If your income from the lodger exceeds this threshold, you have two options:
- Opt for the Rent a Room scheme: This allows you to receive the first £7,500 tax-free, but you must pay tax on any amount over this. You won't be able to deduct any expenses related to the rental.
- Opt out of the Rent a Room scheme: By choosing not to use the scheme, you must declare all your rental income and can deduct allowable expenses before paying tax on the net income.
Deciding which option is more tax-efficient will depend on your total rental income and the associated expenses. If your income from renting part of your home is below the £7,500 threshold, and you're not already registered for Self Assessment for other reasons, there's no need to declare this income to HMRC or file a tax return solely for this income. However, if you are already within the Self Assessment system, you should include this income in your tax return, indicating if the Rent a Room relief applies.
For resident landlords earning over the threshold or those with additional tax situations, it might be wise to consult with a tax professional to ensure compliance and optimize tax obligations.
