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Rent a room scheme - another stream of income

Rent a Room Scheme – another income stream

27 March 2024

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home to create a valuable tax free income stream.

Rent-a-Room Scheme: An Overview

Homeowners can benefit from the Rent-a-Room scheme. This special set of rules is there to help them generate a tax-free income stream by renting out a room in their home. If you participate in this scheme, you need to ensure that your rental income from lodgers doesn’t surpass £7,500 in the current tax year. Earning less than £7,500 means you automatically qualify for a tax exemption, and you don’t need to worry about specific tax reporting. However, if it suits your financial situation better, you have the option to opt out of the scheme and record property income and expenses in the usual manner. This scheme, therefore, offers a flexible and beneficial way for homeowners to earn additional income.


Key Features and Limitations

The relief applies when a homeowner rents out a furnished room to a lodger. It simplifies the tax and administrative processes for those earning up to £7,500 from rent-a-room income. However, if a joint owner of the property shares the income from letting accommodation in the same property, the limit reduces by half.

The rent-a-room limit covers any amounts received for meals, goods, and services provided, such as cleaning or laundry. If your gross receipts exceed the limit, you have two options. You can either pay tax on the actual profit, which is gross rents minus actual expenses and capital allowances, or you can pay tax on the gross receipts and any balancing charges minus the allowance, without any deduction for expenses or capital allowances.

In conclusion, the Rent-a-Room scheme serves as a valuable tool for homeowners looking to generate additional income from their property. By understanding the key features and limitations of the scheme, homeowners can make informed decisions that maximize their financial benefits.

Source: HM Revenue & Customs Tue, 26 Mar 2024 00:00:00 +0100

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