Rent a Room Scheme 2022: How it Works
Everything You Need to Know About the Government Rent a Room Scheme UK
What is the Rent a Room Scheme?
If you’re looking for ways to give your bank balance a boost, renting out a room in your house is a good option.
By signing up to the government Rent a Room Scheme, you won’t only benefit from the extra income from rent, but up to £7,500 of this annual income is totally free from tax!
While this is a great option for earning some extra money, it can be easy to get confused about how the Rent a Room Scheme works, what rules need to be followed and how to get started with becoming a ‘resident landlord’.
With so many rules, regulations and jargon-filled information surrounding the Rent a Room Scheme, getting your head around the basics of what it actually is can seem almost impossible.
Not to worry, though – in this Rent a Room Scheme Guide, we’ll outline everything you need to know about renting out a room in your house.
This Article Covers
What is the Rent a Room Allowance?
The Rent a Room Scheme is for resident landlords who let out furnished accommodation in their own houses. You are classed as a resident landlord if you rent out part of your main home to a tenant or lodger.
Through the Rent a Room Scheme, you can earn up to a threshold of £7,500 per year tax-free from renting out a room in your house. If you share this income with a partner, or anyone else, it is halved to £3,750.
There are important legal distinctions between resident landlord arrangements and other types of tenant contracts.
For example, a resident landlord’s tenants have more limited rights – they’re not able to challenge the agreed rent, and the landlord doesn’t have to give them as much notice to leave the property.
How Much Can I Earn Through the Rent a Room Scheme?
A resident tenant can make up to £7,500 through the Rent a Room Scheme. But, if they share the income from letting the property with someone else, they can only claim up to £3,750 each.
This Rent a Room Allowance limit covers everything you charge your tenants as part of the rental service. So, if you charge them for cleaning, meals or laundry, you’ll need to include these fees.
This means that, if you use the Rent a Room Scheme, you won’t be able to deduct any expenses from your rental income.
Who is Eligible for the Rent a Room Scheme?
So, now we know what the Rent a Room Scheme is and how much you can earn, are you eligible for the scheme? Let’s find out…
The Rent a Room Scheme is available to owner occupiers or tenants who let out furnished accommodation to a lodger in their main home.
You don’t have to be the homeowner to take advantage of the scheme. You’re also able to sign up to the government Rent a Room Scheme and let out a room to a lodger if you’re renting, as long as your own lease states that you can do so.
How Do I Register for the Rent a Room Scheme?
You don’t actually need to register to use the Rent a Room Scheme. If your gross receipts from your rental income are less than £7,500, this will automatically be tax free.
According to HMRC, your gross receipts for the tax year include:
- – Rental income (before expenses)
- – Any amounts you receive for meals, goods and services (e.g. cleaning, laundry)
- – Any ‘balancing charges’ (these prevent you claiming too much tax relief)
If you have made a loss through the Rent a Room Scheme, it may be more beneficial for you to pay tax in the normal way (deducting expenses). If you want to do this, you should let HMRC know.
If your gross receipts exceed £7,500, you can choose how you wish to pay your tax:
- On your actual profit (your total receipts minus expenses and capital allowances)
- On your gross receipts over the £7,500 limit (you can’t claim expenses and capital allowances)
HMRC will automatically opt for the first option. So, if you want to pay your tax using the second method, you must let them know.
It’s important that you take the time to assess your situation properly when deciding which option to choose. For example, if you have considerable tax-deductable expenses, you may pay less tax by choosing the first option.
Do I Have to Declare Rent a Room Income?
It depends.
If the amount you earn from renting out a room in your house is less than the thresholds of the Rent a Room Scheme, then your tax exemption will be automatic and you don’t need to do anything.
However, if you earn more than the threshold, you will need to complete a tax return and declare your Rent a Room Scheme income. If this is the case, you can do one of the following:
- – Choose to opt into the scheme – you will need to let HMRC know this on your tax return and claim your tax-free allowance
- – Not opt into the scheme – you will simply need to record your income and any associated expenses on the property pages of your tax return
If you need to request a tax return because you don’t normally receive one, you can contact HMRC to get one.
How Does the Rent a Room Scheme Affect My Benefits?
While the Rent a Room Scheme can be a great way to supplement your income, the income you do receive might affect some means-tested benefits, such as:
Universal Credit
If you are on Universal Credit, any money you receive from sub-tenants and lodgers under the Rent a Room Scheme won’t be counted as income up to the tax-free allowance of £7,500. However, anything above this will be counted.
Council Tax Reduction
If you were living on your own and qualified for the 25% single person Council Tax Reduction and decide to rent out a room in your house, you will no longer qualify for the discount.
Housing Benefit
If you are a working age social housing tenant the impact of the Rent a Room Scheme on your Housing Benefit will depend on how the person renting the room is classified.
How Can I Find a Lodger for the Rent a Room Scheme?
Before you think about taking in a tenant or lodger, there are a few things you might want to think about…
First, it’s a good idea to get your mortgage lender’s permission to take someone in. And, if you’re a leaseholder, you might need to ask your landlord.
You should also check that your home is safe, with furniture and equipment that meets fire and electrical safety standards. You’ll need to ensure that gas appliances are checked every year by a Gas Safe registered engineer.
It’s also your responsibility to check your tenant’s ‘right to rent’, including their immigration status. If you let property to someone who isn’t legally able to stay in the country, you could be fined.
Make sure you draw up a written agreement and ask your tenant or lodger to sign it. This will ensure that all parties are aware of their responsibilities. You might even want to create an inventory of items in their room and log its condition. This way, you can avoid any disputes when they move out.
Award-winning
Update your address
Take the hassle and stress out of your move and update your address with hundreds of companies
Zachary Roberts
“I used Slothmove for my move in the New Year. What an innovative idea! It’s extremely easy to use and it was really helpful in removing the stresses of relocating. Within about a week I had updated my address without having to lift a finger and I had a case of free beer in the meantime. Great service, would recommend to anybody.”