Many homeowners have taken advantage of sites such as Airbnb to let out a spare room on a temporary basis or their whole property while they are away. In most cases, as long as the associated conditions are met, hosts can enjoy rental income of up to £7,500 tax-free under the rent-a-room scheme.
Rent-a-room relief allows individuals to earn up to £7,500 per year tax-free from letting out furnished accommodation in their own home. This limit is halved where more than one person benefits from the income so each person can enjoy rental income of up to £3,750 per year free of tax.
The relief is available to owner occupiers and tenants. There is no minimum period of let and it applies equally to very short lets.
The relief can be used where a room is let furnished to a lodger. It can also be used where the letting amounts to a trade, for example, where the individual runs a guest house or a bed-and-breakfast or provides services such as meals and cleaning.
Where gross rental income is less than the rent-a-room limit of £7,500 (or £3,750 where the income is shared), the relief is automatic – there is no need to tell HMRC.
Where the gross rental income exceeds the rent-a-room limit, the individual has a choice of deducting the rent-a-room limit and paying tax on the excess or calculating the profits in the normal way by deducting the actual expenses. This is done on the tax return.
It is not possible to create a loss by deducting the rent-a-room limit if, for example, rental income is less than the limit – the income is simply treated as being nil. Where deducting actual expenses from rental income produces a loss, it is better not to claim rent-a-room relief to preserve the loss.
Rent-a-room relief cannot be claimed where the accommodation is not in the individual’s main home, where accommodation is provided unfurnished or where a UK home is let out while the owner is working abroad.
Rent-a-room relief is available for Airbnb-type accommodation as long as the conditions are met. This is likely to be the case if the nature of the Airbnb let is such that it comprises the letting of a furnished spare room in the taxpayer’s home, or the whole home for a short period, such as a weekend or a couple of weeks when the homeowner is on holiday.
However, where the individual uses
Airbnb or similar to let accommodation in a property which is not his or her
main home, for example a holiday cottage, rent-a-room relief is not available
and the normal property rental rules apply. The individual may, however, benefit from the
property income allowance of £1,000.
Although income received by an individual letting out their own home can be tax efficient, other factors should be considered.
If the property is owned subject to a mortgage, the mortgage lender may need to give permission for the property to be let. Similarly, if the property is rented, permission to sublet may need to be obtained from the landlord.
The contents insurance provider should also be notified if the property will be let.
Consideration should also be given to the legal aspects of becoming a landlord, fire and gas safety regulations and changes to the status of the property for council tax.