The Rent-a-Room Scheme allows owner occupiers and tenants to receive tax-free rental income if you provide furnished accommodation, including a Guest House or Bed & Breakfast in your only or main home.

For the tax year from 5th April 2018 the annual Rent-a-Room limit is £7,500. This is reduced to £3,750 each if two people receive income from letting accommodation in the same property, such as joint owners. The limit is the same even if you let accommodation for less than 12 months.

1. Can you use the Rent-a-Room Scheme
You can use the scheme if:
a. You let a furnished room to a lodger
b. Your letting activity amounts to a trade such as running a guest house or bed and breakfast business.

You can’t use the scheme if the accommodation is:
a. Not part of your main home when you let it
b. Not furnished
c. Used as an office or for any business
d. In your UK home and is let while you live abroad

If your gross receipts from letting are not more than the Rent-a-Room limit of £7,500 you don’t pay tax on your profit. If they are more than the limit, you may still be able to benefit under the Rent-a-Room Scheme.
Your gross receipts include:
a. Rental income (before expenses)
b. Any amounts you receive for meals, goods and services, such as cleaning or laundry

If your gross receipts are more than £7,500, you can choose how you want to work out your tax:
Method 1
You pay tax on your actual profit, your total receipts less any expenses and capital allowances.
Method 2
You pay tax on your gross receipts over the Rent-a-Room limit, that is, your gross receipts minus £7,500.

The information above is correct as at 6th April 2021. We cannot accept any liability if you rely solely on this information, professional advice should always be obtained before making a financial decision.