What Is The Rent-A-Room Relief?

If you decide to let a room in your main residence, you can receive a rental income of up to £7,500 and have no tax liability.¹  

In order to claim this allowance, the property must satisfy the following conditions:  

1. you must also live in the property as your main home, at the same time as the tenant, for at least part of the letting period in each tax year;  

2. the room you are letting out must be fully furnished.  

If you claim the rent-a-room relief, then it is not possible to claim any expenditure that you have incurred with regards to the letting.  

This is a very common strategy for those people who have houses that are too large for their needs. For example, if your children have left home, then you may decide to rent the room they lived in for an additional tax-free income.  

Rent-a-Room Relief: Case Study 1 

Bill and Mary have a three-bedroom detached house. They are both higher-rate taxpayers.  

Their daughter Louise leaves home and moves in with her long-term boyfriend, so they decide to let her room out to a local teacher.  

They receive an annual rental income of £4,000 per annum.  

There is no tax liability on this income as it is below the £7,500 threshold value.  

If the income received is greater than the annual allowance, then tax is liable on the amount above this value 

Rent-a-Room Relief: Case Study 2 

Howard is a bachelor but lives in a luxury five-bedroom detached house on the outskirts of London. He is also a higher-rate taxpayer.  

He decides to let a room to a newly graduated doctor for £8,500 per annum.  

Howard will have no tax liability on the first £7,500. However, he will be liable to pay tax on the remaining £1,000 of income at 40%. This means that he will be liable to pay £400 in tax.  

If you decide to let a room in your main residence and claim the relief, then you must inform HMRC. This is regardless of whether you will have a tax liability.  

If you do not inform HMRC, then you will be taxed as though you are running a normal property-letting business, where your expenses will be deducted from any rental income you receive. 

¹ All that is necessary is to tick the rent-a-room box at the beginning of the land and property page of the tax return.