Rent a Room relief on letting income

Rent a Room relief is a valuable relief that was first made available in 1992. It is available where you let space in your own home as furnished residential accommodation - to a lodger, for example.

Qualifying for the relief

The relief is only available to individuals, not business partnerships or companies.

The space let can be a room or a whole floor, as long as the area is not permanently self-contained. It can even cover the whole property, provided you continued to live there for at least some of time that it was let. It is not available on unfurnished accommodation, or on business accommodation such as office space.

Amount of relief

HomeThe relief works by giving you a yearly allowance (for estimated expenses) against all such letting income. The letting income includes separate charges for additional services such as meals, cleaning or laundry.

The basic amount of the allowance is £4,250 per person per year, and this is not necessarily scaled down if you only let accommodation for part of the year. But the allowance is halved to £2,125 per person if someone else also received letting income from the property for the year (or any 12 month period covering your whole period of letting, if that is less than a year), while you were also living there. This is to stop couples using one partner to claim the full allowance for the first 6 months of the year, and the other partner claiming the full allowance for the second 6 months.

The most common case where the allowance is halved is where the property is owned by more than one person, and each has an entitlement to some of the rental income. In this case, each owner is entitled to receive half of the allowance, regardless of whether their share of the income is 50% or some other proportion.

If you move home during the year, the total allowance applies to both properties added together. You do not get a separate allowance for each property.

The difference between claiming and not claiming the relief

If your rents received are less than the allowance, you are treated as having automatically claimed the allowance, and so any income will be tax-free. If you have made a loss, this will not be available under the relief. To claim it as a tax loss to carry forward, you need to notify the tax office that you do not want the relief to apply.

If your rents received are more than the allowance, you pay tax on the amount received over the amount of the allowance. This is instead of claiming your actual expenses, which may be higher or lower than the allowance.

One of the advantages of the relief is therefore that you do not need to keep detailed records of your expenses in order to fill in your tax return. Capital allowances are not given, but balancing charges may apply on the sale of an asset used in the rental business.

As you may be worse off by claiming the relief (as your actual lettings expenses may be more than the allowance), it is optional from one tax year to the next. That is, for each tax year ending 5 April you can choose whether or not to claim it, independently of whether or not you claimed it last year.

If you have rental losses brought forward from a previous tax year, and you are claiming the relief this year, you only need to claim enough of the loss such that there is no taxable income remaining. Any loss that is not claimed is available to carry forward to a later year.

How to claim the relief

If your rents (before all expenses) are above £4,250 and you wish to claim the relief, the tax office must be notified. Once it has been claimed, it will continue to apply automatically unless the rent drops below the amount of the allowance, or until you tell the tax office that you want to go back to the normal basis. At this level of rent, each year that you wish to change the basis, you will need to notify the tax office.

If your rent does drop below the amount of the allowance, you are automatically exempt from the tax, and need to notify the tax office if you do not want to claim the relief (you may want to do this if you have a rental loss, for example). If you stay exempt from tax but in a later year your rent rises above £4,250 again, you need to make a new claim for the relief if you wish it to start again.

There are time limits for notifying the tax office, but in practice all such requirements are met by filing your self assessment tax return on time.