HMRC’s Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in 
your home. The scheme provides a welcome tax break to help you maximise your income without incurring tax. Major sporting events such as this week’s Wimbledon and the Henley Regatta are perfect opportunities to make the most of the scheme and you can save even more if you are diligent with keeping detailed records of income and outgoings.
Under the scheme it’s possible to let out as much of your home as you want. You do need to be aware that the £7,500 threshold is halved if you share the income with your partner or someone else.
The tax exemption is automatic if you earn less than the threshold. This means you don’t need to do anything.
You must complete a tax return if you earn more than the threshold. From 6 April 2016, this is £7,500. For the 2015 to 2016 tax year, the threshold was £4,250.
You can then opt into the scheme and claim your tax-free allowance. You do this on your tax return.
You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return. A few more details about the scheme:
- You can take advantage of the scheme if you let furnished accommodation in your only or principal home to a lodger
- The tax relief does not apply to rooms let as an office or for other business purposes
- A lodger can occupy a single room or an entire floor of your home
- The scheme does not apply if your home is converted into separate flats that you rent out. In this case you will need to declare your rental income to HMRC and pay tax in the normal way
- If you provide meals and laundry services and make an additional charge for these, you will need to add this income to the rent to work out the total receipts. If this is more than £7,500 a year in total, you will need to pay tax on the excess, even if the rent itself is less than that
If you use the scheme, you cannot also claim any expenses relating to the letting, for example, the cost of replacing furnishings, insurance, repairs, heating and lighting. Therefore, you need to work out whether you will be better off joining the scheme or declaring all of your letting income and claiming expenses on your tax return. You may also need to arrange some liability cover which will protect you against accidents and injuries when someone is staying in your home.
