The Rent a Room Scheme increases your bank balance

Already this year in the first two quarters we have seen London’s rental prices soar by 3.7%. It’s therefore a timely announcement in the UK budget to allow Landlords to earn more tax free. The rent a room scheme has always been an incentive for Landlords renting out a room and now it’s even better. Consequently, the UK government hopes supply will increase.

How it works

The Rent a Room Scheme was put in place to incentivise homeowners to rent out their spare room and by allowing them to earn up to £4,250 tax free. In order to claim this tax benefit, all Landlords have to do, is to let out a furnished room in their household. This scheme is also great for trades, such as Bed and Breakfast and guest homes which are also eligible to access the Rent a Room Scheme.

After 18 years the rent a room scheme is now even more enticing since landlords are now able to claim up to £7500 tax free. This was long awaited and received with great joy across the lettings industry when announced by George Osbourne in the summer budget.

Find out more on the budget in the UK rental market.

How do I claim my tax free amount?

For gross rental income at or less than £4,250

Landlords will receive the tax exemption and therefore be charged no tax on any of their rental income.

For gross rental income more than £4,250

If landlords earn more than £4,250, you will need to complete a tax return form and at this point have three steps:

Opt into the room rental scheme here: Opt in
Inform the HMRC you have opted in (HM Revenue & Customs) on your tax return form
Enjoy your tax free allowance

The advantages and disadvantages

The first evident advantage is that landlord can rent out a room and keep more of the income generated.

The second is that the increase in tax free allowance should entice more landlords with spare rooms to rent out their rooms increasing supply on the market.

The increased of landlords joining in the rental market should give tenants more options and decrease the average rent price across the UK.

Beware that you will not be accepted on the scheme if;