Rent-a-Room Scheme

Under the Rent-a-Room scheme if you own your own home (or if you're a tenant for that matter) you are permitted to let furnished rooms in your home and receive income which will not be taxed. It's called the 'Rent a Room' scheme.

Since the 1997/98 tax year you have been able to earn up to £4250 rental income per annum tax-free, or £2150 per person if the room is let jointly by a married couple.

Rent includes payments for meals, cleaning and laundry as well as the accommodation itself. Amounts you charge to cover council tax, telephone and heat & light are not necessarily allowable for tax relief.

To qualify under the scheme, you must live in the property with the tenant for at least part of the time, and it must be your principal place of residence - in other words your main home.

If the gross rent received is greater than the annual allowance, you may choose to pay tax either on the excess or on the gross rent less expenses such as management costs and maintenance (but not home improvements).

Where the gross rent is not much over the allowance, the first option is usually cheaper. Further information on the Rent-a-room Scheme can be found here.

Moneyextra's mortgage centre will help you make the right decision.

Last Updated: March 2008 © Moneyextra.com

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