HMRC Increases Personal Tax-Free Allowance to £16,320 for Eligible Couples
The basic Personal Allowance, which is the amount most individuals can earn before paying income tax, has remained frozen at £12,570 since 2021. However, HMRC rules permit certain people to legally boost their tax-free allowance significantly higher, up to £16,320, through a little-known scheme.
Understanding the Rent a Room Scheme
Under the Rent a Room Scheme, homeowners can earn up to £7,500 per year tax-free by letting out a furnished bedroom in their primary residence. This income does not incur any tax liability, providing a valuable financial benefit.
If the rental income is shared with a partner, the allowance is divided equally. In such cases, each person can earn £3,750 tax-free, which increases their individual Personal Allowance from the standard £12,570 to £16,320.
Eligibility and Conditions
You do not need to be a homeowner to qualify for this scheme. It is open to most people living in the UK who wish to rent out a furnished room in their main home. Whether you are a homeowner, a tenant, or even operating a small guest house, you may be eligible, provided certain key conditions are met.
If you opt into the Rent a Room Scheme, you cannot claim any expenses related to the rental. This means costs such as repairs, maintenance, cleaning, or replacing a broken boiler must be covered out of your own pocket, even if they are directly associated with the rental activity.
The landlord or homeowner is responsible for council tax, but they can include these costs as part of the rent. Additionally, the landlord must inform their local council if they no longer live alone or if there are specific property licensing requirements in their area.
Current Application and Benefits
Currently, residential landlords can utilize the Rent a Room Scheme for short-term lets. As long as the annual rent collected amounts to less than £7,500 (or £3,750 if shared), they can claim the benefits of this scheme.
For landlords in London, the Rent a Room Scheme can be particularly advantageous for short-term rentals, as they are permitted to rent a room for up to 90 days per year. This flexibility allows for additional income without tax implications, making it an attractive option for many households.
By taking advantage of this scheme, eligible couples and individuals can effectively increase their tax-free earnings, providing a financial boost in a time when the standard Personal Allowance remains stagnant. It is essential to understand the rules and conditions to ensure compliance and maximize the benefits available.
