How to Start & Run a B&B BandBED2eBook-1 | Page 66

The Rent a Room scheme
If you already have a lodger or are thinking about letting furnished rooms in your home,
you can receive up to £4,250 a year tax-free (£2,150 if letting jointly). This is known as
the Rent a Room scheme.
How the scheme works
The Rent a Room scheme is an optional exemption scheme that lets you receive a
certain amount of tax-free 'gross' income (receipts before expenses) from renting
furnished accommodation in your only or main home.
Who can take advantage of the scheme?
You can choose to take advantage of the scheme if you let furnished accommodation in
your only or family home to a lodger. (Your only or family home is the one where
you/your family live for most of the time. A lodger is someone who pays to live in your
home, sometimes with meals provided, and who often shares the family rooms.)
A lodger can occupy a single room or an entire floor of your home. However, the
scheme does not apply if your home is converted into separate flats that you rent out. In
this case you will need to declare your rental income to HM Revenue & Customs
(HMRC) and pay tax in the normal way. Nor does the scheme apply if you let
unfurnished accommodation in your home.
Do you have to be a home owner?
No. You can choose to take advantage of the Rent a Room scheme, regardless of
whether you are a home owner or are renting your home. However, if you are renting,
you should check whether your lease allows you to take in a lodger.
If you're a mortgage payer it's best to check whether taking in a lodger is within your
mortgage lender's and insurer's terms and conditions.
If you share a home and both let a room or rooms
If you and your spouse are both letting furnished accommodation in your joint home, you
will each be entitled to receive half of the allowance (up to £2,125 for the 2010-11 tax
year) without paying tax.
If you provide meals and laundry services and charge for such additional services, you
will need to add the payments you receive to the rent, to work out the total receipts. If
you get more than £4,250 a year in total, you will have to pay tax, even if the rent is less
than that.
The advantages and disadvantages of the scheme
There are advantages and disadvantages of the scheme – it’s simply a matter of
working out what is best for you.
The principal point to bear in mind is that if you are in the Rent a Room scheme you
can’t claim any expenses relating to the letting (for example, wear and tear,
insurance, repairs, heating and lighting).
To work out whether you will be better off joining the scheme or declaring all of your
letting income and claiming expenses on your tax return you need to compare the
following:
(a) how much income you are left with after your expenses, and
(b) the amount of your receipts (rent plus any income from laundry services, meals, etc)
over £4,250 or £2,125 if letting jointly (these figures are for the 2010-11 tax year)
If you opt out of the scheme (or simply do nothing) you will pay income tax on the first
amount. If you opt into the scheme you will pay tax on the second amount.
HMRC publishes some example calculations to help you decide which method would be
best for you [see www.howtorunabandb.com for links].
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