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Tax on the income received from letting a room in a house

A lot of people let out rooms in their residence for extra income. This raises the question whether they need to pay tax on the income generated from renting out a room.

If you are letting a room or rooms (furnished) in your main residence, then there is a special exemption that you may want to opt for. The Rent a Room Relief Scheme means that no additional tax is payable if your total Gross rental income (before deducting any expenses or capital allowances) is less than £4,250.

The first £4,250.00 is therefore exempt from tax and the income as well as expenses can be ignored for tax purposes. If the Gross rental income is more than £4,250.00, then you will need to include the amount that exceeds £4,250.00 as taxable income. Example: Total rent received for the tax year was £6,538, then you will need to pay tax on £2,288.00 (£6,538 less £4,250.00).

You are, however, entitled to ignore the scheme and rather opt to take into account the Gross rental income and expenses if, for instance, your expenses are more than your Gross rental income for the room and you want to carry forward the loss.

Birka Bosman
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