Rent a room tax relief was introduced in 1992 to increase the availability of low cost accommodation for tenants, but the rental market has changed a lot since then. There is high awareness of this tax relief, but also a lot of confusion about when it can apply.
Rent a room relief covers rent of up to £7500 per year from letting furnished residential accommodation in the taxpayer’s own home. The taxpayer must live in the same property. However, the relief can apply to rent received when letting the whole house for short periods, while the taxpayer is temporarily away on holiday, as long as the taxpayer has not made another home elsewhere.
The relief can’t apply to income from holiday lets where the owner does not occupy part of the same property. Similarly, it can’t apply to income from a buy to let which is not simultaneously occupied by the landlord.
The taxpayer does not have to notify HMRC that they are claiming the relief, if the gross rent does not exceed £7500. If the gross rents exceed that figure the taxpayer must choose to be assessed either on the excess gross rents above the relief (method B), or on the actual profits from the letting (method A).
Many people let rooms in their own home by the night through sites such as AirBnB.com. This income is covered by the rent-a-room scheme, even if it amounts to a bed and breakfast business (see Helpsheet HS223), as long as the landlord lives in the same property.
However, letting of rooms by the night doesn’t meet the governments aim of increasing low cost housing, and the government is now considering changing the rules for rent-a-room relief to exclude very short term lets. It has issued a call for evidence to collect views on how the rent-a-room scheme is currently used. Anyone that currently uses the rent a room scheme to cover their B & B earnings are encouraged to respond to this consultation as it could affect future relief.