Renting a room to a lodger – the need to know tax implications.
27th May 2015
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If you rent out a room in your own or main home to a lodger for accommodation and not for use for business purposes, you are able to claim a tax free allowance called rent-a-room relief.

Depending on how much you intend on receiving from your lodger, will determine whether you need to declare the income on a tax return. If you receive rent on a weekly or monthly basis plus contributions to household bills, these need to be added together to establish the total amount received.

If you are going to receive less than the current threshold of £4,250 (approximately £350 per month) in a tax year, you will not have to complete a tax return. This amount is reduced to £2,125 if during the tax year, the property is jointly held. The tax exemption is automatic if you earn under these thresholds.

You must complete a tax return if you earn more than the threshold. You can opt into the scheme and claim the tax-free allowance by filling in the appropriate box on your tax return. You can register for a tax return by phoning H M Revenue and Customs or by submitting a form online.

If your gross receipts in the tax year do exceed the £4,250, you can choose whether you pay tax on your actual profit, gross receipts less expenditure incurred on the property, eg. Mortgage interest, Electricity/Gas etc, or gross receipts less the £4,250 exemption mentioned above.

It is very important that you check whether your lease allows you to take in lodgers if you rent your property. If you own your property, you may need to check with your mortgage provider if they have any objections to you having lodgers. You may also need to make sure you have the appropriate house insurance in place.

The tax rules regarding this can be complex, so for further information we would recommend seeking assistance from a qualified accountant.

For further advice on this subject and any other area of accountancy or taxation, please contact Sam Carter from our Hastings office on 01424 720222 or email samc@ashdownhurrey.co.uk or Louise Franklin from our Bexhill office on 01424 730300 or email louisef@ashdownhurrey.co.uk

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About the Author

Louise F

Member since: 25th November 2014

I work for Ashdown Hurrey, where I qualified as a chartered certified accountant in February 2014.

I joined the practice after completing my degree in accounting and finance at Manchester Metropolitan...

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