Rent a Room Relief
Rent a Room Relief is available where an individual lets a furnished room in their main residence. The relief removes the requirement to pay income tax and file a tax return where certain criteria are met.
Broadly, up until 5 April 2016, where a furnished room in a residential home was let for less than £4,250 p.a. before deducting expenses, then the relief applied and no tax was due. The £4,250 limit has remained unchanged since 1997/98, however this has now increased to £7,500 with effect from 6 April 2016.
If this limit is breached then an election can be made to deduct £7,500 from the rental income, the balance is then taxable but no other expenses can be taken into account.
By way of example, if a property owner lets a room in their home for £700 a month, then the full £8,400 (£700 for 12 months) must be declared on a tax return. If the total expenses attributable to the room are £1,000 then it is more beneficial to make the election and deduct £7,500, leaving £900 (£8,400 less £7,500) as taxable income than to deduct the expenses and tax £7,400 (ie £8,400 less £1,000).
The relief only applies where the room is let residentially and not for commercial use. In addition, no other taxable income can be derived from the arrangement.
If the property is owned by more than two people, each gets a £3,750 (£2,125 prior to 6 April 2016) income limit.
The relief does not apply to companies or partnerships.
If you would like more information or if you require tax advice on property income please contact our Tax Director, Jenny Marks.
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