If you rent a room out in your home, from 6 April 2016, HMRC let you earn up to £7,500 tax free. To qualify for the relief, you must be a resident landlord or run a Bed and Breakfast. The accommodation must be furnished and be part of your home.
The exemption is automatic if your rent a room income is under the threshold.
If you earn over £7,500 you can opt into the scheme and claim your £7,500 allowance on your return.
However, you can choose whether or not you claim the allowance and you should choose which is more tax efficient:
- Method 1 – pay tax on your gross receipts less the allowance.
- Method 2 – pay tax on your gross receipts less expenses.
You can opt in and out of the scheme in each tax year. However, if you want to opt in and claim the relief, you will need to tell HMRC within the time limit, which is 31 January following the end of the tax year.
Careful consideration is needed if you are making losses.
If you need any help or advice, please give us a call on 01908 227055.