Rent a Room Scheme
The Rent a Room Scheme is an optional scheme, allowing owner occupiers and tenants the opportunity to receive tax-free rental income by renting out their furnished accommodation to a lodger, in your only or main home.
It allows you to earn up to £7,500 a year (the annual rent a room limit for the tax year 2018 to 2019) tax-free. If you are letting jointly with someone else, this figure is reduced to £3,750.
When can I use the scheme?
When am I not able to use the scheme?
Opting in and out of the scheme
Paying your tax
Impact on Benefits
Housing benefit -
Depending on how the person you are renting your spare room to, is classified, will determine how any Housing Benefit you receive will be treated. The person you are renting to, will be classified as a boarder or a sub-tenant:
If you are providing a room and prepared food as well, the person you rent your room to, will be known as a boarder.
In this case the first £20 of rental income you receive per week is disregarded along with half of the remaining amount of rent you receive. For example, if the rent is £60 per week, £20 will be automatically disregarded, plus £20 of the remaining £40 rent you receive.
For the purposes of Housing Benefit you will have £20 a week income, which may impact the amount you receive in Housing Benefit.
The person you rent out your spare room to, will be known as a subtenant If you are providing a room only and no meals.
The first £20 of any rental income you receive, per week will still be disregarded, but the remaining amount will be classed as income.For example, if the rent is £60 per week, £20 will be automatically disregarded, but the remaining £40 you receive will be classed as income and could impact on the amount of Housing benefit you are entitled to.
If you are in receipt of Housing Benefit, and you are renting out your only spare room you won’t be affected by the bedroom tax. However if you have more than one spare room, you will be subject to it.
Council Tax reduction
You will no longer be eligible for the single occupier 25% council tax reduction (if you previously qualified) if you rent a room to a lodger.
Income from the rent-a-room scheme will not be counted as income (up to the tax-free allowance of £7,500) for the purposes of Universal Credit.
If you are renting out a spare room, you will be subject to the bedroom tax.
Although you are not able to claim expenses with the rent a room scheme, it is still a good idea to keep detailed records. If you decide to opt out at a later date you may need this information. Visit www.gov.uk/keeping-your-pay-tax-records to read HMRC guide to record keeping.