The Government’s “Rent a Room” scheme allows anyone renting out a spare room in their home to earn £7,500 per annum tax free. This includes Host Families who currently offer Homestay accommodation and rent their spare room(s) to international students. This threshold was increased from £4250 in 2016 to encourage more people to rent out spare rooms, and enjoy a tax break for doing so.
In March 2017, however, a paragraph buried in the Government’s Budget document suggested the “Rent a Room” tax break could be removed for short-term letting. This was the result of public concerns about London and the UK’s long-term housing stock being short let to tourists for higher returns. It said that the the Government “will consult on proposals” to “align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings”.
However, this was prior to the recent election and the resulting political uncertainty. So as of today, we do not know if this paragraph in the Budget is something to be overly concerned about. As recent political events in the UK have shown, anything can change. It inevitably does, but not as you might expect it to.
If the tax break is amended, the devil will be in the detail.
For now therefore, the scheme is still very much in place. So, our advice to anyone thinking about renting out a spare room to foreign students, would be to press on but keep an eye on this space.
How does the Rent a Room scheme work?
You can earn £7,500 of tax-free rental income a year from a lodger, or from hosting foreign students, under the Government’s Rent a Room Scheme. To qualify you need to:
- Let a furnished room.
- Be a resident landlord (“host family”), whether or not you own your home.
- You can also run a bed and breakfast or a guesthouse and provide services such as meals and cleaning.
- You can let out a room or an entire floor.
When can you NOT use the Rent a Room Scheme?
You can’t use the scheme if the accommodation is:
- Not part of your main home when you let it
- Not furnished
- Used as an office or for any business – you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities
- In your UK home and is let while you live abroad
Calculate “gross receipts” from renting your room to foreign students
“Gross receipts” is the total income that you earn from hosting and renting your spare room(s) to foreign students. If your gross receipts are not more than the Rent a Room limit of £7,500 you don’t pay tax on your profit. You do not need to do anything in this case – you automatically qualify for the tax free income. If they are more than the limit, you may still be able to benefit under the Rent a Room Scheme.
Your gross receipts include:
- rental income (before expenses)
- any amounts you receive for meals, goods and services, such as cleaning or laundry
You usually count your gross receipts for a tax year – that is, from 6 April one year to 5 April the next.
If your “gross receipts” from hosting overseas students are more than the Rent-a-Room limit
Homestay, by its nature, tends to be short term and from time to time. It may be unlikely therefore that you surpass the £7,500 threshold. If you think you might, however, we would advise that do some more detailed research into how to calculate “profits” from hosting students for tax purposes. HMRC’s own website is the best starting point.
Thinking about becoming a Host Family and hosting students?
If you are looking into hosting foreign students for the first time, you may also benefit from reading past posts on what exactly is a host family and our beginner’s guide to renting out a spare room. The first post will give you a better of what it takes to be a great host to overseas students, and whether it will be the right option for you. The second post is a more practical guide with things to consider when renting your spare room out for the first time.
HFS London is one of London’s largest providers of homestays for students, interns and visiting professionals. We work for London’s top language schools and educational institutions.
We are currently looking for new host families across north, south, east and west London in zones 1 to 4 and would love to hear from you if you are considering renting your spare room to international students!