The summer budget of 2015 has increased the rent-a-room relief from £4,250 (which has been unchanged for 18 years) to £7,500 making renting part of your private residence much more attractive. This would equate to a £625 monthly room rate. This relief is also available if you rent a room in a guest house or bed & breakfast.
The definition of income includes the room rental plus any extra received for meals and cleaning.
If your income is significantly higher than this you may be better staying within the normal property rental rules and deducting your expenses from your income and paying income tax on the difference.
The new limit will apply from 6 April 2016.
Restricting finance costs for individual landlords to basic rate tax
At present all mortgage interest payments can be deducted against property rental income in calculating the property profit to be included in a self-assessment tax return.
From 6 April 2017 this will not apply to buy-to-lets but will still apply to furnished holiday lets.
The change will not happen overnight but is to be introduced gradually. Landlords will obtain relief as follows:
- In 2017-18 75% of finance costs will be deductible in full and the balance of 25% will qualify for a basic rate tax deduction;
- In 2018-19 50% of finance costs will be deductible in full and 50% will qualify for basic rate relief;
- In 2019-20 25% of finance costs will be deductible in full and 75% will qualify for basic rate relief;
- From 6 April 2020 all finance costs will qualify for basic rate tax relief only.
These changes will not apply to companies.
If you would like to discuss these changes then please call us on 01737 244298.
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