This video is all about the rent a room scheme and Airbnb style letting.
Rent a room – some extra income
One way that many performers and other people gain income if they own their own home, is to rent a room out to a lodger. The government will allow you to earn up to seven and a half thousand pounds in a tax year without actually having to pay tax on it. If you are a couple, then it’s 3,750 pounds per person in a tax year. Of course, you do need to declare it on the tax return, but it actually does not form part of any taxable income, woo-hoo. So you declare it, so you have got rent-a-room because obviously if people come and sniffing around, then they might find out, or might think, “Oh, you’re avoiding tax.” So, and you still have responsibilities to the lodger, for example, health and safety, the room must be in good repair, et cetera, et cetera, et cetera.
If part of the home is rented as an office however, or for other commercial use, then this is outside the rent-a-room scheme. So it has to be living accommodation. So this living accommodation must be furnished and it also, well it doesn’t matter whether it’s one room or a whole wing or a whole floor, but it has to be furnished living accommodation. It has to be part of the home and not a separate flat or a separate outbuilding. If it was separate, it would be a different kind of scheme.
If it was again outside, then it’d be normal rental property, and that will be fully taxable unless it’s less than a thousand pounds. And there’s another guide on low income property. But the killer is, the landlord must actually live in the property at the same time it is let to a lodger. There is obviously some flexibility in that, if you go away on holiday and the lodger is there for a week, then that’s fine. All encompassing, it is being let whilst you are living there.
So, what if you go over the seven and a half thousand pound threshold? Well, there isn’t much beef about it, you can either declare the whole rental as a full property rental. And that way you get to disclose your income and declared costs, or you declare all the income as a rent-a-room scheme and then take off the seven and a half thousand pounds tax-free allowance.
So you then pay tax on the rest of it. It’s actually the better way of doing it, because at least you get seven and a half thousand pounds relief and you might not be able to identify cost specific to having the lodger there. So if you do go via the seven and a half thousand pounds rent-a-room scheme, you cannot claim any other costs, okay? So it’s income only.
Now where this differs from Airbnb. Airbnb can be a room or floor in your home. It can be completely separate accommodation. So there are two different types. It can be the rent-a-room in your home, declare it as Airbnb, goes through the normal property rules. But if you are still living there with the person on Airbnb, then you can call it a rent-a-room scheme. Still, have to have the accommodation rooms, so it has to be furnished, it has to be separate for where you live. But there is no minimum or maximum stay for the person to be in that room. Not like furnished holiday lets whereas it’s really only up to 31 days.
If you are doing a completely separate accommodation, so an outbuilding, a separate property and hosting that on Airbnb, it won’t be rent-a-room, but it’s a normal property let as you are not living there at the same time. So you will be taxed on the profits of the business. It might qualify for furnished holiday lets, there’s a different video about that. But you’ll be declaring the income plus all the costs relating to that rental.
Really it is two different things. It is, if you live in the property at the same time, you can claim the rent-a-room. If you’re not living in the property, then it has to go through the property rental scheme. It all comes under the same heading of Airbnb, you just have to be very careful which scheme you’re using.
As a reminder, what are your allowable expenses? Well, the rent-a-room scheme, you don’t get any allowable expenses. For a rental property on the Airbnb, you can get allowable expenses and you follow the normal property rules. In the resource centre, there is another video that talks about furnished holiday lets and rental property.
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