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Rent a Room tax-free allowance must rise to £10,000, says HomeOwners Alliance

Rent a Room tax-free allowance must rise to £10,000, says HomeOwners Alliance
Samantha Partington
Written By:
Samantha Partington

Consumer group HomeOwners Alliance is calling for an increase to the Rent a Room Relief tax allowance ahead of the spring Budget to reflect the current cost of renting in the UK.

Under the current rules, homeowners can earn up to £7,500 per year tax-free from letting out part of their home on a furnished basis.

If you earn less than £7,500 from renting out part of your home, the tax exemption is automatic. If you earn more, you will need to complete a tax return so that you can opt into the scheme and claim your tax-free allowance.

You do not have to be the owner of the property, as long as you have your landlord’s consent to sublet a room. You must, however, be letting out part of a property that is your only and main home.

Real cost of renting

HomeOwners Alliance says it is time the scheme was brought up to date to offer relief that reflects the real cost of renting to make the scheme more appealing.

“Under the current scheme, homeowners can rent a room in their home, helping them to afford soaring mortgage payments,” said Paula Higgins, chief executive of HomeOwners Alliance. “We successfully campaigned in 2015 to get the Rent a Room Relief increased so that £7,500 of any income is tax-free. But this figure hasn’t been revised since. We think there is no better time – when the UK is buckling under a cost-of-living and housing crisis – to extend the tax-free earnings.”

The average cost to rent a room in the UK stands at £8,868 per year or £12,168 per year in London, according to flat-sharing website Spareroom.com.

HomeOwners Alliance wants to see the tax-free allowance rise to £10,000 and increased annually.

Scrapping stamp duty

The group also wants the Chancellor to update the rules of the Lifetime ISA by removing the withdrawal fine of 25% for those who buy a home above the current £450,000 price limit.

Furthermore, it wants to see an end to stamp duty for everyone except investors and second homeowners.

Higgins added: “The financial penalty is so great, it stops people moving home. Stamp duty stops elderly people from downsizing, it stops families stepping up the ladder and stops homeowners making a sideways move, perhaps for work or family reasons. The ensuing inactivity limits the number of properties to choose from when buying, at a time when housing is in short supply.”

Related: Rented housing crisis set to worsen as demand soars