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What is rent-a-room relief?

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, 2021/22 (before the deduction of any expenses),
  •  the source of the income relates only to one residence, and
  •  the following conditions are met:
  1. 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),
  2. the house in which the room is let is your only or main residence, and
  3. 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 may not 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’.

HMRC are reviewing the rent-a-room allowance this year.

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, 2021/22, 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, 2021/22.

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 2021, you must make the election by 31 January 2023. You usually do this by ticking the relevant box on your self assessment tax return that you want the relief to apply.

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 income exceeds £3,750 then you can elect to opt in to the ‘alternative basis’, and if it does not 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.

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