Considering letting a room?

Make sure you understand the rules

If you are a taxpayer and are considering providing furnished residential accommodation in either your only or main home, then the rent-a-room scheme applies to the income generated. For example, you may benefit if you take in a lodger. The rules either exempt rental income or tax it on a more favourable basis.

Under rent-a-room you can be exempt from income tax on profits from furnished accommodation in your only or main home if the gross receipts you receive (that is, before expenses) are currently £4,250 or less in the 2008/09 tax year. But you can’t then claim any of the expenses of the letting.

In addition, receipts over the £4,250 exemption limit can be taxed on an alternative basis that may produce a lower tax bill. The excess of the gross receipts over the exemption limit is treated as the taxable rental income instead of the actual profit.

For the purposes of the rent-a-room scheme, gross receipts include not only rents but also payments made to you for the provision of any other goods or services (such as meals, cleaning, and laundry) in connection with the letting. The £4,250 limit may also be halved if someone else receives rents from letting the same home.

The rent-a-room scheme applies to ordinary lettings of living accommodation in your own home. It does not apply to rooms let as an office or for other business purposes. But the scheme applies to genuine lodgers who study at home or who conduct some of their business work at home in the evenings or at weekends.