£4,250 Tax Free Income Rent A Room Relief
£4,250 Tax Free Income
Rent-a-Room Relief
Most people completely ignore the tax benefit available under Rent-a-Room Relief for one very understandable reason: they do not want to share their home with a lodger.
The legislation, however, does not say the room or rooms have to be rented to a lodger, staying there all year. If, for example, you are going away for a long summer break there is nothing in the tax legislation to stop you renting out your home to someone while you are away and keeping all the income completely free of tax.
2012 Olympics
If you live in or near London and are planning to be away in August of next year it should not be at all difficult to find someone who wants easy access to the 2012 Olympics and would pay highly for it! Even venues far from London will be attracting Olympic visitors – for example the football stadia in Glasgow, Newcastle, Manchester and Birmingham, or the marina in Weymouth. If you are anywhere near any of these you could attract Olympic visitors.
Rules for Obtaining Relief
There are four basic rules you must follow in order to qualify for the relief:
- The room or rooms must be within your “only or main residence”;
- The letting must be for living accommodation, not for use as an office for example;
- The relief is limited to £4,250 gross receipts in the tax year;
- The relief only applies to individuals, not to companies or partnerships (although it does apply where individuals share the income other than as a business arrangement, for example husband and wife).
“Only or main residence” is not the same definition as for capital gains tax relief. Indeed, you do not even have to own the property and could obtain this relief for sub-letting rooms in a rented property if the landlord agreed. This means you cannot take advantage of the capital gains tax rules that allow you in certain circumstances to treat a property as being your main residence even though you do not currently live there. The rule is actually very simple in its interpretation: where would friends or correspondents normally expect to find you?
“Living accommodation” does not have to mean place of permanent residence. It would be permanent in the case of a lodger, but the law does not specify permanence as a requirement. A holiday-maker living there for only one or two weeks would be perfectly acceptable under the law. This would perhaps be an unusual application of the law, and may cause raised eyebrows in the local HMRC office, but only because most people have always assumed it only applied to lodgers and have not read the legislation carefully. If you are attracting Olympic visitors they will be there to live rather than to do anything else, albeit for a temporary period, and therefore meet the requirements.
The rule that the income from this letting should not exceed £4,250 during any one tax year is unlikely to be much of a limitation if you are simply looking at a few weeks while you are away on vacation. No doubt you would be quite satisfied with this to pay for two or three weeks occupation of your home!
If your tax inspector does try to claim you cannot use the relief for temporary lettings, ask to see where the legislation says this. It categorically does not say so. If the inspector says you cannot let the whole of your home, as then it could not be your “only or main residence”, point out that nowhere in law does it say that your home ceases to be your “only or main residence” when you go on holiday. Any grief from HMRC, and direct them to Income Tax (Trading & Other Income) Act 2005 Section 784 which dictates exactly how they must apply the relief.
Published: June 4, 2011
Author: Graham Dragon
Category: Tax
Permalink: £4,250 Tax Free Income
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