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The ‘Rent-A-Room’ relief scheme is an optional tax exemption scheme that allows property owners who let out spare furnished rooms in their only or main home to receive up to £4,250 per annum gross and not be subject to tax.

If the rent received exceeds £4,250, the first £4,250 is tax free, income tax being paid on the balance. This obviously covers income from lodgers and may also be applied to bed and breakfast or guest houses which would usually be assessed as a trade.

The exemption limit of £4,250 is reduced to £2,125 if, during the tax year, someone else receives income from letting from the same property.

The £4,250 limit is not reduced if the room is let for less than 12 months. The same amount applies, therefore, even if the room is rented for only one month or just in term time.

The owner and lodger must occupy the property for at least part of the letting period in each tax year of claim.

The ‘Rent-A-Room’ relief limit will be increased to £7,500 as from 6 April 2016.

Example:
Sisters Jane, Julie and Rose inherited a six-bedroom house from their father. The sisters live in the property as their main residence and it is large enough such that three of the bedrooms are let. The ‘Rent-A-Room’ limit is halved to £2,125 each as ‘someone else received income from the same property’.

In this situation the total exemption amount is £6,375 (i.e. 3 x £2,125).

It is irrelevant that the total exemption amount exceeds the £4,250 limit.