Q. We have to take on a number of temporary staff who are coming from across the country and will require temporary accomodation. A member of staff has told me that employees could rent a room in their homes to these temporary workers and the rents received from the temporary workers would be tax free. Is this the true and what, if any, procedures would those offering a room have to go through?
A. Yes this is true. Under H M Revenue & Customs (HMRC) “Rent a Room” scheme it is possible to rent a room within your main home and gross reciepts upto £4250 per year (£2125 per year if the income is shared) are exempt from tax.
Of course, terms and conditions apply and you need to be careful to ensure you will qualify under the scheme.
Rent-a-room applies to income from providing furnished residential accommodation in the taxpayer’s only or main home. For the purposes of the rent-a-room scheme, gross receipts include not only rent but also payments made to the landlord for the provision of any other goods or services (such as meals, cleaning, laundry etc) in connection with the letting.
The landlord does not have to be a home owner and even those who rent property themselves can qualify under the scheme. Just ensure you review your own lease or tenancy agreement to ensure it allows subletting. To qualify however you need to be resident in the property at that the time the room is be let. The room must be an integral part of your main residence and not a separate dwelling.
You can let more than one room in the qualifying property but the rooms made available must be used for residential purposes. Let accommodation used as an office or for storage would not qualify for exemption under the scheme.
If you want to charge your lodger more than the exempt amount of £4250 you can but you will need to declare the income over and above exempt allowance on a self assessment tax form. Alternatively you can declare all your letting income, ignoring the exemption and claiming any allowable expenses incurred in letting the property if this results in a lower tax liability.
In addition to the tax aspects of renting a room the following points should also be considered:
- Ensure your mortgage lender has no issue or conditions regarding letting a room to a non-family member. Some mortgage agreements prevent this.
- Inform your home insurance provider that you have a lodger. In some cases this may increase premiums, but if you do not disclose the information you could render any policies invalid should you need to claim.
- Generally, standard home contents policies will not cover the belongings of a lodger and most wont cover any theft or damage of your contents by a lodger or a paying tenant in your home.
- It is advisable to get something in writing between you and your lodger.
- Take time to find your lodger and if possible set up more than one meeting before they move in. Dont simply accept the first person who turns up and can afford the rent. Remember you will have to live with this person in your own home, sharing common areas such as the kitchen and bathrooms. It is essential that you can get along.
TaxWise is available to help answer any tax queries. Just call the Advice Service on 01455 852555 and one of our specialists will be happy to help.