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The rules of the ‘Rent-A-Room’ relief scheme enable the landlord to prepare the usual income and expenditure accounts and then compare the actual expenses incurred with the ‘Rent-A-Room’ relief.

The default position is the normal method of calculation but should a landlord decide that ‘Rent-A-Room’ relief would be more beneficial then he or she must make a formal claim.

A comparison can be made year on year and the method changed to cater for whichever gives the better result.

A landlord has up to one year after 31 January following the end of the tax year to decide which option to use and to make a claim.

If the deadline is not met the default position is used.

Example:
Julie is a higher rate 40% taxpayer who lets out her spare room for a total of £9,000 per year to include the provision of breakfast.

For 2015/16 the 'Rent-A-Room' relief was £4,250 and as such the taxable amount was calculated as follows:

Gross income                             £9,000
Relief                                         £(4,250)
Balance to be taxed                    £4,750
Tax payable at the 40% rate =     £1,900

In the subsequent year 2016/17 Julie estimates that although she will receive the same gross amount of £9,000 she will incur costs of £10,000, producing a loss of £(1,000).

Even though the relief increased to £7,500 for the year 2016/17, clearly it would be more beneficial to prepare normal property income and expense accounts claiming the loss of £(1,000), rather than claiming ‘Rent-A-Room’ relief.

The loss can generally be claimed against other property income – or carried forward and offset against future net profits.

This is a sample tip taken from our 112 page guide: