Rent-a-room relief

By Tolley
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The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Rent-a-room relief
  • Conditions
  • Basis of assessment
  • Individual’s limit
  • Interaction with PPR relief

The rent-a-room scheme was introduced in the early 1990s to encourage homeowners to take in lodgers.

Fundamentally, the rent-a-room scheme is a relief which means that the rent received by an individual from a lodger (up to a prescribed limit) can be exempt from income tax. If the gross rents are less than £7,500 (£4,250 for tax years between 1997/98 and 2015/16), the income is ignored for income tax purposes, although this limit will be halved if another person is also entitled to the income. For example, where a husband and wife own the property jointly, the limit is reduced to £3,750 each, even if the income is not split equally.

The rent-a-room scheme is designed to apply where a lodger shares the taxpayer’s own home. It cannot be applied to rooms let as an office or otherwise for business purposes, although this would not prevent the lodger from, say, being a student with an area set aside for study.

See the Flowchart ― rent-a-room relief taken from PIM4060.

It was announced at Budget 2018 that the planned change to the rent-a-room relief rules to add a shared occupancy condition would not be legislated in FA 2019. No revised legislative timetable was provided and it would appear that this proposal has been dropped following the responses to the draft Finance Bill 2019 legislation, probably in favour of the shared occupancy amendment to lettings relief for principal private residence (PPR) relief (announced on the same day).

Overview of tax legislation and rates 2018 , para 2.7
Conditions
Income must be otherwise taxable as trading income or property income

To qualify for rent-a-room relief, the individual must receive rent or payment for goods / services (eg meals, cleaning and laundry) in respect of accommodation. The rent must accrue to the individual during the ‘income period’ (see below).

More on Taxation of property income: