When you let rooms in your own home as residential accommodation you can receive the rent tax free if it falls within the limits for rent-a-room relief. This relief is currently capped at rents of £7,500 per year. Where more than one person receives the rent from the property, each person has a tax-free exemption for rent of £3,750.
The conditions for rent-a-room relief stipulate that you must occupy the property as your main home – this relief can’t cover income from a holiday home or buy-to-let property. Also, the accommodation must be used for residential purposes, not as an office.
From 6 April 2017 there is another allowance of £1,000 which covers rental income (for any land or building) which doesn’t qualify for rent-a-room relief.
This £1,000 property income allowance can apply to rent from letting an area as an office, store room, or even from parking rights on your drive. However, you can’t use the £1,000 allowance against rent paid by your own company, a company you work for, or one which your spouse is associated with.
Any extra rental income which exceeds either of these reliefs is taxable, and must be declared on the your tax return, along with any related expenses.
Can you claim rent-a-room relief or the property allowance?