Rent a room
Do you sub-let a room in your house to a lodger? Having income from property normally means you need to consider your tax position, tell HMRC about it and possibly pay extra tax if you make a profit.
If you sub-let a furnished room in your own home to a lodger, you may be able to benefit from the ‘rent a room’ scheme.
Income from renting out a room to a lodger may qualify for ‘rent a room relief’, if:
- your gross rent a room income does not exceed £7,500 for the tax year 2017/18 (£7,500 for 2016/17), before the deduction of any expenses;
- the source of the income relates only to one residence; and
- the following conditions are met:
- the income arises from the letting of furnished accommodation in a ‘residence’ in the UK, or from associated goods and services, for example providing meals, cleaning or laundry services to a lodger;
- the house in which the room is let is your only or main residence; and
- if it were not for the rent a room relief, the income would be taxable, either as trading income, property income or miscellaneous income.
If all of the above conditions are met, the income is exempt from tax and you cannot claim any deductions for related expenses. You do not need to do anything for the exemption to apply; it will apply automatically unless you ‘opt out’.
You may wish to opt out of the rent a room scheme if you have made a loss – your expenses are more than your rental income. You may prefer to be taxed on the normal basis for rental income, so that you can claim and use the loss.
What if my rent a room income exceeds £7,500 for any one year?
If you meet all of the conditions for rent a room relief above, but your gross rental income exceeds £7,500 for 2017/18 (£7,500 for 2016/17), you do not qualify for the automatic exemption.
However, you can make an election to opt in to an ‘alternative basis’. The taxable amount will then be the gross rent received, plus any payments received for meals and services, less £7,500 for 2017/18 (£7,500 for 2016/17). You cannot claim any deductions for related expenses.
This election must be made to HMRC in writing by 31 January, in the second year after the end of the relevant tax year. For example, if you wish to opt in to the ‘alternative basis’ for the tax year ended 5 April 2017, you must make the election by 31 January 2019. You usually do this by ticking the relevant box on your self assessment tax return that you want the relief to apply.
You may not wish to elect for the ‘alternative basis’ of the rent a room scheme if you have made a loss – your expenses are more than your rental income. You may prefer to be taxed on the normal basis for rental income, so that you can claim and use the loss.
What if the rent a room income is split between me and my spouse/partner/flatmate?
If you and another person are both due to receive rental income from the same property, then the allowance is shared equally between you. The above tests and conditions still apply, but the threshold in each case is £3,750 instead of £7,500. This means that if your rent a room income exceeds £3,750, then you can elect to opt in to the ‘alternative basis’, and if it does not exceed £3,750, then it is automatically exempt.
A quirk in the rules is that even if more than two of you are due to share the rental income, you still each get relief for up to £3,750. So if three of you own a property together and sub-let a room to a lodger, overall you get 3 x £3,750 relief – that is, £11,250!
Do I need to complete a tax return?
You may need to complete a tax return if you have rental income which is taxable, although sometimes HMRC can collect the tax on a small amount of rents against your Pay As You Earn (PAYE) code if you are an employee or a pensioner.
More information on needing to complete a tax return can be found in our separate guidance on this topic.
If you start getting rental income, you should tell HMRC about it – contact them as soon as possible, but at the latest by 5 October following the end of the tax year in which you start to let the property. That is, if you start getting rental income in the year to 5 April 2018, tell HMRC by 5 October 2018.
Where can I find more information on property tax issues?
You can find more information on renting out property on the dedicated page in this section.
If you have income from overseas property and have come to the UK from abroad, you might find our 'migrants section' helpful.
More on the special rules for furnished holiday lettings can be found on the GOV.UK website.
You need to be careful about capital gains tax if you sell or dispose of a property – in whole or in part. You may need to consult a tax adviser for help. You can find an adviser on the Chartered Institute of Taxation website.