Taxing Times Mar 12

Last year my wife and I started renting out a room in our house in order to raise some extra cash. Will I need to pay tax on this additional income?

Answer:

In 1992 the government of the time introduced a relief known as ‘rent a room relief’. The relief provided a tax free amount of rent that could be received before tax became payable. The tax-free threshold was last raised in 1997/98 to £4,250 per annum. This tax relief is for letting accommodation in the individual’s only or main residence, which may include ancillary services such as laundry and meals. The relief can apply to a small bed and breakfast business as long as the owner also occupies the property. It may also apply where the whole house is let for a short period while the owner goes on holiday.

If the gross income is under the threshold of £4,250, rent a room relief applies automatically, unless the taxpayer elects otherwise. If the gross rents exceed this threshold the taxpayer may choose to be taxed on just the excess or elect for the relief not to apply and use normal income and expenditure rules. If a loss is likely to arise the relief should be disclaimed so the loss can be claimed.

Where more than one person owns and occupies the property, each owner-occupier is entitled to rent a room relief of half the threshold. This may potentially increase the amount of total rent a room relief available where there are more than two owner occupiers.

It is worth noting that rent a room does not cover:

•    Space let as an office, storeroom or garage
•    Letting property not also occupied by the taxpayer
•    Where the taxpayer is a company or partnership
•    Letting a house while working abroad
•    Rent paid by a child to its parents (outside the scope of tax)

HMRC’s denial of rent a room relief for office space is based upon the phrase ‘furnished accommodation’. HMRC says ‘furnished accommodation’ means residential accommodation not office space.

Any reader interested in discussing this topic further can telephone Graham Jennings on 01344 875000 or email graham.jennings@kirkrice.co.uk

Answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.