When you let rooms in your own home as residential accommodation, you can receive the rent tax-free if it falls within the limits for rent-a-room relief. This relief is currently capped at gross rents of £7,500 per year.
Where more than one person receives the rent from the property, each person has a tax-free exemption for rent of £3,750.
The conditions include that you must occupy the property as your main home at some point in the tax year. This relief can’t cover income from a holiday home or buy-to-let property. Also, the accommodation must be used by the tenant for residential purposes, not as an office or storeroom.
If you let out land or buildings that don’t qualify for rent-a-room relief, the income could be covered by the £1,000 property income allowance. You can’t use this allowance against rent paid by your own company, a company you work for, or one with which your spouse is associated.
If either type of rental income exceeds the relevant allowance, it must be declared on your tax return, along with any related expenses. If the allowance exceeds the actual expenses, you can deduct that allowance in place of those expenses.
Where you receive a ‘thank you’ payment for hosting Ukrainian refugees under the Homes for Ukraine scheme, that payment does not count towards the rent-a-room allowance or property income allowance, but it is tax-free.
We can help you make sure that you declare the correct amounts of rental income and expenses.