Owning multiple houses or rooms may give you satisfaction, but does it give you monetary benefits, to be precise, a return on investment? The answer is no. Keeping your house empty will cause you a financial burden; after all, you still have to pay for the amenities and taxes. Instead, you can use it as an opportunity to put your rooms or properties to work by renting them out to potential customers and availing room rental tax benefits.
By renting the property out, you are providing someone a place to stay, and in return, you will get a room rental, thus opening a source of income for you. The revenue earned from renting your house will help you maintain your properties and pay taxes on it. Additionally, you can also be liable for room rental tax benefits.
Speaking about room rental tax benefits, the government has started a rent-a-room scheme that can save your taxes on rental income but after fulfilling certain conditions. Have you heard about this scheme? if not then not to worry because we have prepared a comprehensive guide on room rental tax benefits. So, let’s get on with it.
What is the Rent a Room Scheme that Comes Under Room Rental Tax Benefits?
Once your rooms are rented you will start earning rental income but every income is liable for taxation. However, you can get room rental tax benefits if your rental income is below limit as decided in the rent a room scheme.
Under this scheme, you will be eligible for room rental tax benefits by making earnings of up to £7,500 per year tax-free. If you are jointly owning the room, then you will be liable for £3,750 tax-free per year.
How Does this Scheme Work?
£7,500 per year that’s the limit under this scheme, if you are earning less then you are automatically exempted. However, if your rent earnings have crossed the £7,500 per year then it’s your duty to file tax return with the HMRC. After filing your return, you can claim for tax-free allowance. If you find the scheme difficult to understand or need more elaboration on it, then you can take the help of Coxhinkins specialist accountants.
Do I Qualify for Rent-A-Room?
If you own a house or rooms or are a resident landlord, you can opt for this scheme anytime. It is important to understand that to be eligible for room rental tax benefits, you will need to have a furnished room. A furnished room will enable you to charge a higher room rent, which is important, especially when you are in the business of renting. If you own a guest house with multiple rooms, you are eligible for room rental tax benefits.
To qualify for that, you will need to have detached rooms. If you are a UK citizen but reside abroad, you might think of renting out your house and availing yourself of the benefits of this scheme.
With regard to usage, customers can use the rooms for office or business purposes; itwill not affect their benefits in any way. You can also be eligible for this scheme if the lodger conducts evening or weekend business or offers study facilities.
It is important to note that you will be given two options regarding how you wish to tax the income generated from renting a room.
Option 1: Paying Tax on Profit
Option 2: Taxing Excess Profit
Conclusion
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Disclaimer: Kindly note this blog provides general information and should not be considered financial advice. We recommend consulting a qualified financial advisor for personalised guidance. We are not responsible for any actions taken based on this content.
