The Rent a Room Scheme provides a tax-free allowance of £7,500 for owner occupiers letting out accommodation in their own homes. It allows them to let out furnished accommodation to a lodger in their main home and in turn they do not have to pay tax if the rental income is £7,500 or less. If there is more than one recipient of the income, each person gets relief up to £3,750. It applies automatically and does not have to be claimed.
The allowance is the same even if the room is let for a period of less than 12 months, i.e. If the room is only rented out for a period of 6 months the relief does not get time apportioned.
If the income received is £7,500 or less there is no requirement to report it on a self-assessment tax return but a record of the income will need to be kept. If the income exceeds this limit then a return may need to be completed.
If an individual was considering letting out part of their home to a tenant than there are a few points they may wish to consider:
It would be advisable to check their mortgage contract to see whether they are required to obtain the lenders permission to be able to rent out part of the property.
They should inform their insurance company that they have a lodger, failure to do this could invalidate the house insurance policy.
It’s advisable that the owner occupier and the lodger sign an agreement, so that the rights and responsibilities for each of them are clearly set out. Legal advice should be sought in respect of this agreement.
An inventory of the furniture and fittings provided in the lodger’s room should be drawn up. An inventory will confirm exactly what items are in the room and the list should prevent possible disputes when the lodger moves out.
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