Rent a Room Scheme
This article explains what the Rent a Room Scheme is and how to claim the relief in FreeAgent.
The Rent a Room Scheme lets landlords earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in their home. The threshold is halved to £3,750 if the income is shared with another owner of the property.
Landlords who earn more than the threshold from renting out a furnished room in their home can either:
- not claim Rent a Room relief, and pay tax on the actual profit from renting their room out, which is their total income minus any expenses and capital allowances, or
- claim Rent a Room relief and pay tax only on room rental income over the Rent a Room threshold, which is the total income from renting the room out, minus £7,500 (or £3,750 if the room rental income is shared) - landlords who choose this method can’t deduct any expenses or capital allowances from their Rent a Room income
If you’re not sure which method to choose, please speak to your accountant. If you’re not currently working with an accountant, you may wish to find one through FreeAgent CoPilot.
Please note that you can’t claim both Property Income Allowance and Rent a Room relief for the same property. You can only claim one or the other for each property that you own.
If you want to claim Rent a Room relief and you’ve currently been explaining your bank transactions to a disallowable category, then you can either continue to do so, or follow the steps below.
How to claim Rent a Room relief
To claim Rent a Room relief for a property in FreeAgent, you need to update the ownership arrangement for the property.
To do this, select the ‘Property’ tab at the top of the screen and select ‘Edit property settings'.
If the relief relates to a new property, select ‘Add new ownership arrangement’.
If the relief relates to an existing property, select ‘Edit’ to the right of the relevant ownership arrangement.
Next, select ‘Yes’ to ‘Claim Rent a Room relief?’.
Choose when you’d like the Rent a Room relief to be effective from and enter details of the ownership split if the property is jointly owned.
Please note:
- The Rent a Room threshold will be halved to £3,750 if the property is jointly owned.
- Rent a Room relief won’t be claimed if Property Income Allowance is also being claimed.
Once you’ve entered the relevant details for the ownership arrangement, select ‘Save changes’ to complete the process.
FreeAgent will then add the relief to the relevant sections on your Making Tax Digital (MTD) for Income Tax or Self Assessment return, whichever applies to you.
MTD for Income Tax
Once you’ve chosen to claim Rent a Room relief for a property in the property settings, FreeAgent will add a row below the Income and Expense sections of the UK property page for income related to the Rent a Room Scheme.
If the property is jointly owned and the percentage ownership has been added for the property, FreeAgent will automatically set the ‘Is Rent-a-Room income shared with another individual?’ question to ‘Yes’.
Self Assessment
Once you’ve chosen to claim Rent a Room relief for a property in the property settings, you may also need to select ‘Yes’ or ‘No’ to ‘Are you claiming Rent a Room relief’ and select whether you’re claiming property income allowance, on box 4 on the UK Property page of your Self Assessment return.
FreeAgent may not currently do this for you automatically.
Please note:
- If your property rental income relating to the Rent a Room Scheme is under the threshold, you must set box 4 to ‘Yes’. FreeAgent won’t then include Rent a Room income in box 20, and will keep box 37 as £0.00.
- If your property rental income relating to the Rent a Room Scheme is over the threshold, FreeAgent will automatically set box 4 to ‘No’. FreeAgent will then include Rent a Room income in box 20 and populate box 37.
How FreeAgent calculates Rent a Room income
FreeAgent automatically calculates the amount of Rent a Room relief in box 37 based on whether the property is jointly owned in your property settings. You can override this amount but it can't be set to higher than the threshold.
The amount of rental income qualifying for the Rent a Room Scheme is calculated from the value of invoices or bank transactions explained as rental income.