HM Revenue & Customs is carrying out a review of rent a room relief, to ascertain whether the scheme, introduced back in 1992, provides the right incentives for the rental market.
The current scheme exempts from tax, gross rents up to £7,500, where rooms within the taxpayer’s main residence are rented out.
Of those who responded to the call for evidence most were keen for the relief to continue, as it encourages taxpayers to let out spare rooms and provides them with additional income.
Note that where the gross rental income exceeds £7,500 – say £12,000 – the excess of £4,500 would be taxable.
Alternatively, the taxpayer may deduct costs of providing the living accommodation, such as a proportion of mortgage interest and light and heat. If these allowable expenses amounted to £9,000, then it would be more appropriate to be taxed on the net rental profit of £3,000.
It is also important to note that the current scheme only provides relief where the rooms let are in the taxpayer’s main residence. And, if the property is jointly owned, the relief would be £3,750 each. Where the lettings are in another property, the new £1,000 property allowance could be set against the gross rental income, however this allowance applies to each taxpayer.
For more information on this topic or to discuss how we can help you effectively structure your finances for tax and save you money, contact your usual Beavis Morgan Partner.
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