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HMRC rule allows tax-free personal allowances to rise to £20,070
HMRC says the relief can add £7,500 tax-free income, with landlords, hosts and pensioners all able to use the scheme.
- Under the HMRC Rent-a-Room scheme, homeowners can increase their tax-free Personal Allowance to £20,070 by letting out furnished accommodation, earning up to £7,500 annually without tax liability.
- Counteracting rising mortgage costs, homeowners use this relief to generate extra money, said Laura Suter, AJ Bell's director of personal finance, noting savings up to £1,500 annually for basic-rate taxpayers.
- Thresholds for the Rent-a-Room scheme are £7,500 per year, halved to £3,750 if income is shared with another person, with automatic tax exemption below the limit.
- While this scheme offers relief, freezing the Personal Allowance at £12,570 until 2031 creates 'fiscal drag,' pulling millions into higher tax bands and increasing the overall UK tax burden.
- By 2030, everyday middle earners will become higher-rate taxpayers, warns David Little, partner at Evelyn Partners, while recent State Pension increases could be offset by income tax on frozen thresholds.
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