£7,500 tax free? Game, set and match to the rent-a-room scheme

04 July 2017

The summer of sport and music is upon us, with events up and down the country attracting visitors from throughout the UK and abroad. If day-tripping, camping or glamping aren’t possible, they all have to stay somewhere. Increasingly, accommodation provided by hotels and local bed-and-breakfast businesses is supplemented by local residents letting rooms in their homes via room-renting platforms such as Airbnb and HouseTrip, or direct on social media such as Facebook, Twitter and LinkedIn.

HMRC’s rent-a-room scheme allows owner-occupiers and tenants to receive tax-free rental income if they provide furnished accommodation in their home. For the current tax year, the annual rent-a-room limit is £7,500. This reduces to £3,750 if someone else receives income from letting accommodation in the same property, such as a joint owner.

The rent-a-room scheme is not restricted to letting a furnished room in your home to a lodger. It’s also available to people running guest houses or bed-and-breakfast businesses. HMRC has set up the scheme so that it’s as simple as possible to operate, but there are some pitfalls to watch out for.

For example, you can’t use the scheme if your accommodation:

  • is not furnished; or 
  • is not part of your main home when you let it; or 
  • is in your UK home which is let while you live abroad.

So if, for example, you own a two-bed investment property near Glastonbury or Wimbledon, that won’t qualify for the rent-a-room scheme because it’s not your main home.

The good news is that you can receive up to £7,500 in the tax year without having to pay tax on the profits you make. Receipts include not only rental income (before expenses) but also amounts received for meals, cleaning, laundry etc. Even better, if your gross receipts are less than £7,500, then you don’t even have to tell the taxman.

But beware: if you receive more than £7,500 in the tax year, then you must tell HMRC and file a return no later than 31 January after the end of the tax year. If you don’t do that, then the sweet taste of strawberries and cream may become very bitter when the taxman catches up with you.

For more information please get in touch with George Bull, or your usual RSM contact.