Are you thinking about cashing in on the boom in demand for rentals over the Olympics? If so, don’t forget to check whether you need to declare the income for tax. With the popular ‘Rent a Room’ scheme, under which Olympics rentals fall, you can make as much as £4,250 a year including expenses, completely tax free.
How does it work?
Rent a Room is optional, but it’s a great way to earn tax-free income from renting furnished accommodation in your main home, in other words your only or family home, the place you live most of the time.
- The scheme doesn’t apply if your home is already converted into separate rented flats. If so, you’ll need to declare your rental income in the usual way. It doesn’t apply to unfurnished lets either
- It doesn’t matter whether you own or rent your home, you can still take advantage of Rent a Room
- If you have a mortgage, it’s wise to check with your lender in case letting part of your home goes against your mortgage agreement. The same goes with your home insurance policy
- If two of you both let furnished accommodation in your joint home, you’ll qualify for half the Rent a Room allowance – that’s £2,125 – each
- If you provide food or laundry services as well, add the cost to the rent. If the total ends up more than £4,250 a year you’ll pay tax on anything over the allowance in the usual way, via a self -assessment form
Are there any disadvantages?
- If you join the scheme you can’t claim any expenses related to letting; things like wear and tear, insurance, repairs, heating or lighting
- It’s a balancing act between being better off joining the scheme or declaring your total letting income and claiming expenses via your tax return. If you don’t join the scheme you will pay income tax on your profits. If you do join you’ll pay tax on the excess money you earn over and above the Rent a Room allowance
What about Rent a Room for businesses?
If you run a B&B or provide catering and cleaning services as part of an existing letting business, you can still qualify for Rent a Room. All you do is mention it on your next tax return.
What are the tax implications of joining the scheme… or not?
- If you want to join the scheme, you don’t usually fill in a tax return and you earn less than the allowance, tax exemption is automatic. You don’t need to do anything.
- If you earn more than the allowance, you let HMRC know by completing a self assessment tax return at the end of the tax year.
- If you are letting space in your home but don’t want to join the scheme, you need to fill in a tax return in the usual way, declaring your lettings income and expenses on the ‘property’ pages.
What if I move out for the duration of the games?
If you rent your home and live somewhere else during the Games, you’ll be taxed on the profits on a residential property lettings basis.
Should I keep records?
Oh, yes. Keep detailed records whether or not you join the Rent a Room scheme, just in case you need them. Better safe than sorry!