Rent A Room Relief- How You Can Deal With Rental Income

If you have the ability, one way in which to increase your income is to rent out your spare room Signing up to the Rent a Room scheme offers the means of enjoying an additional £7,500 per year that is tax free.

The scheme is optional and available to both owner occupiers and tenants, who let out accommodation which is furnished to a lodger within their main home. The scheme enables an individual to enjoy an extra income of up to £7,500 per year tax free, or £3,650 if the letting is conducted jointly. Best of all, you do not have to be a homeowner to take advantage of this scheme. Those who are renting are able to join the scheme, contingent on the terms of lease allowing this option.

If your rental income is less than the threshold of the Rent a Room scheme, then the tax exemption is automatic and no action is required. In the case that the income exceeds the threshold, then a tax return must be completed, even if your employment status does not require this. Then you have two options:

• Choose to opt into the scheme: If you choose this option, you need to make HM Revenue and Customs aware of this decision on your tax return and claim your tax free allowance.
• Choose to not opt into the scheme: In this instance, you simply record the income resulting and additional associated expenses on the property pages on your tax return.

It is important to note that whilst there is a form to request a tax return form should you decide to opt in, there is no equivalent form for telling HM Revenue and Customs that you do not want to be included within this scheme.

When taking in a lodger you may decide that you wish to charge for additional services, examples of this include charging for the provision of meals or of laundry services. You must add any money that is earnt in this way to the total received in rent, in order to then work out your total income. If your total income remains under £7,500 you are still tax exempt. If the income from these means exceeds £7,500 when added to the income from rent, then it will mean your overall income is now greater than the individual Personal Allowance and tax must be paid on this excess.