Understanding Rent a Room Relief

Rent a Room Relief is a tax relief that could significantly reduce your tax liability if you rent out a furnished room in your home.

Rent a Room Relief is a scheme offered by HMRC, allowing you to earn up to £7,500 per year tax-free by renting out a furnished room in your primary residence.

This relief is designed to encourage people to make the most of their unused space, providing a little extra income without the burden of additional tax.

You can claim Rent a Room Relief if:

• 1) You’re Renting Out a Furnished Room in Your Main Home**: The relief applies when you rent out a room in your main home, which must be furnished. It doesn't apply to properties you own but don't live in.

• 2) The Income is Below the Threshold:
  The tax-free threshold is currently £7,500 per year. If you share the income with someone else, such as a spouse or partner, the threshold is halved to £3,750 each.

• 3) You’re an Owner or a Tenant:
  Whether you own your home or rent it from someone else, you can still claim this relief as long as you're renting out a room in the property where you live.

When Can You Not Claim Rent a Room Relief?

There are specific situations where Rent a Room Relief does not apply:

• 1) If You’re Renting Out an Unfurnished Room:
  The scheme specifically applies to furnished rooms only. If the room isn’t furnished, the relief cannot be claimed.

• 2) If the Room is Not in Your Main Home:
  If you’re renting out a room in a property that isn't your primary residence (such as a second home or a buy-to-let property), you won’t qualify for Rent a Room Relief.

• 3) If You Run a Business from the Room:
  The relief doesn’t apply if you use the room for business purposes, such as an office or a guesthouse.

• 4) If Your Income Exceeds the Threshold and You Opt Out:
  If your rental income exceeds £7,500 (or £3,750 each if shared), you can choose to opt out of the scheme and instead report the income and expenses on your Self-Assessment tax return, which might be beneficial in some cases.

Claiming this relief is straightforward if you meet the criteria. You can do so through your Self-Assessment tax return. If your rental income is below the threshold, you don't need to do anything else – it's automatically tax-free.

If you have any questions or need help determining whether Rent a Room Relief is right for you, feel free to contact us.