Money tip #59 – Take advantage of the Rent a Room scheme and save tax

3 min Read Published: 30 Apr 2010

Updated 22nd July 2013

If you already have a lodger or are thinking about letting furnished rooms in your home, you can receive up to £4,250 a year tax-free (£2,125 if letting jointly). This is known as the Rent a Room scheme’

How the scheme works

The Rent a Room scheme is an optional scheme that lets you receive a certain amount income from lodgers tax-free.

Who can take advantage of the scheme?

You can choose to take advantage of the scheme if you let furnished accommodation in your only or family home to a lodger. (Your only or family home is the one where you/your family live for most of the time. A lodger is someone who pays to live in your home, sometimes with meals provided, and who often shares the family rooms.)

A lodger can occupy a single room or an entire floor of your home. However, the scheme does not apply if your home is converted into separate flats that you rent out. In this case you will need to declare your rental income to HM Revenue & Customs (HMRC) and pay tax in the normal way. Nor does the scheme apply if you let unfurnished accommodation in your home.

The advantages and disadvantages of the scheme

There are advantages and disadvantages of the scheme - it's simply a matter of working out what is best for you.

The principal point to bear in mind is that if you are in the Rent a Room scheme you can't claim any expenses relating to the letting (for example, wear and tear, insurance, repairs, heating and lighting).

To work out whether you will be better off joining the scheme or declaring all of your letting income and claiming expenses on your tax return you need to compare the following:

  • how much income you are left with after your expenses
  • the amount of your receipts (rent plus any income from laundry services, meals, etc) over £4,250 or £2,125 if letting jointly (2010-11 tax year)

If you opt out of the scheme (or simply do nothing) you will pay income tax on the first amount. If you opt into the scheme you will pay tax on the second amount. (source directGov website)

More info can be found by following this link

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