Come August, Edinburgh will see an influx of artists, performers and tourists all looking for accommodation for the festival season.
Many residents in Edinburgh see this as opportunity to rent out a spare room (or their entire home) for the month to earn a bit of extra money.
Renting out your home for special events like the Fringe can be lucrative, but have you thought about the tax implications of doing so?
Renting out a spare room in your home
‘Rent a room’ relief of £7,500 is available to you if you’re renting out a spare room and you still occupy your property. Rent a room relief means that the first £7,500 of rental income from your spare room is completely free of income tax.
For joint owners, a couple each receives up to £3,750 of gross rents completely free of income tax.
The exemption is automatic if you earn less than the threshold.
Income above and beyond £7,500 is subject to your usual Scottish rate of income tax.
Renting out your home
For some Edinburgh residents, the festival is a good opportunity to rent out their entire home, using the income to fund a holiday away from the hustle and bustle of August.
Unfortunately, rent a room is not available in these circumstances. Rent a room is only available where the owner occupies the property whilst the property is let.
When letting out your entire home, the rental income (less any allowable expenses) is taxable. The income is subject to income tax at your marginal rate of Scottish income rate of tax.
Broadly speaking, allowable expenses could include letting agent’s fees, additional insurance costs and other direct costs relating to the letting such as the cost of cleaning and providing additional keys. Allowable expenses don’t include items like spare beds and bedding.
You may have to register with HMRC for a self-assessment tax return to report the rental income and expenses and pay any tax due.
If you let your entire house for less than £1,000, you can claim ‘property allowance’ which came into effect in 6 April 2017. By claiming this allowance, you can earn up to £1,000 free of tax in the tax year.
Thinking about letting your property during the festivals? If you need help with the tax implications, drop us a line for a chat at mail@ct.me or contact one of our Personal Tax Team.
Author: Joshua Williams, CT: Evolve