Rent a Room threshold increased – great news for homestay!
19-08-2016
In July, the government announced that the Rent a Room tax break threshold will be increased from the current level of £4,250 to £7,500 from 6th April 2016. The purpose of the increased threshold is to allow individuals who claim Rent a Room relief to enjoy more income whilst paying less tax.
What is the Rent a Room tax break?
The Rent a Room tax break currently lets you earn up to a threshold of £4,250 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else.
How does the Rent a Room tax break affect homestay?
To qualify for the Rent a Room scheme, the accommodation has to be furnished, with the lodger(s) occupying one room or an entire floor of the house.
The Rent a Room tax break does not apply where part of a home is let as an office or other business premises. The relief only covers circumstances where payments are made for the use of living accommodation.
You can let out a room or an entire floor, however the tax break doesn’t apply if the house is converted into separate flats that are rented out. Nor does it apply to unfurnished accommodation. Those using the Rent a Room tax break cannot claim tax back for any expenses relating to the letting (e.g. insurance, repairs, heating).
Due to the requirements of our students, all Study Links homestay qualify under the Rent a Room scheme.
How the Rent a Room tax break works…
The tax exemption is automatic if you earn less than the threshold. This means you don’t need to do anything.
To work out whether it is preferable to join the scheme or declare all of the letting income and claiming expenses via self-assessment, the following methods of calculation need to be compared:
https://www.gov.uk/government/publications/rent-a-room-relief-increase/increasing-rent-a-room-relief
HMRC (HM Revenue and Customs) state that you must complete a tax return if you earn more than the threshold.
You can then opt into the scheme and claim your tax-free allowance. You do this on your tax return.
You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return.
More information
Read the Rent a Room helpsheet for more detailed information on how to complete the form, and when it makes sense to opt out of the scheme.