Want or Need an Extra £7,500 pa Income Tax Free? Rent a Room

If you would like an extra £7,500 pa income tax free, then rent a room out …

• Are you struggling with your mortgage payments due to higher interest rates?
• Has your rent increased substantially over the last few years?
• With the cost-of-living crisis, are your bills getting too much for you?
• Are you on your own and need some company?
• Retired and need a boost to your pension?
• Does a friend need a room?
• Do you have spare bedroom?

Then perhaps renting a room in your property is an option.  Under Rent a Room Relief rules, you are allowed to rent a room in your property for up to £7,500 pa tax free.

• You should also make sure you are not breaching any mortgage conditions (if an owner) or tenancy agreement (if renting as subletting may not be permitted)
• If you are a joint owner then rent a room relief is share 50/50 i.e., £3,750 each.

Conditions for Rent a Room Relief:

• Must be for private domestic use and not commercial e.g.  not offices, workshops, or trade.
• Property be safe and in a good state of repair.
• No requirement for a rental agreement although we suggest you are better to have one.
• Must be furnished.
• You must be a resident landlord (whether owner or renting) i.e., you must physically live there.
• Bed and breakfast accommodation and guest houses can also use this.
• Houses in Multiple Occupation (HMO) do not qualify.

Two Types of Lodger Occupation:

Excluded Occupier

• You must live in your home.
• No requirement to place any deposit in a government approved deposit protection scheme.
• Share living space with lodger such as the kitchen, lounge, and bathroom.
• Notice period limited to frequency of rental payments e.g.  monthly rent = minimum 1 month notice of any termination/changes.
• Give lodger ‘reasonable notice’ to end the letting and you do not have to go to court to evict them.

Basic Protection Occupier

• You must live in your own home.
• No requirement to place any deposit in a government approved deposit protection scheme.
• Lodger has own living space, you do not share living spaces.
• Tenancy Length: 
• Periodic e.g., monthly rent means a rolling monthly contract and minimum 1 month notice of any termination/changes
• Fixed Term:  Set in weeks, months or years and fixed notice periods.
• Give lodger periodic or fixed notice to end the letting but you will have to go to court to evict them if they do not leave.

Move Out:

If you move out and the lodger remains, you no longer qualify for Rent a Room Relief and the property becomes a normal tenanted property with the usual rights of occupation, notice periods, deposit protection scheme, gas and electrical safety checks as well as fire safety and possibly energy performance certificate C and above (if they are made law again for tenanted properties).

Capital Gains Tax:

You may be subject to capital gains tax on sale based upon the proportion of the property let v property size as well as the proportion of time with a resident lodger versus total ownership period of the property but you will benefit from Lettings Relief against capital gains which is the lower of:

• Proportion of Private Residence Relief available
• £40,000

See example CGT calculations:  Lettings Relief

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