Rent a Room Relief

As hundreds of homeowners rent out their rooms and houses during the sporting events such as Wimbledon tennis championships, for up to £15,000 a week, it is important to pay the right tax to avoid penalties.

This year’s tournament is seeing a very buoyant market with houses renting at up to £15,000 a week, four-to-five-bedroom houses renting for £7,000 a week, three-bedroom houses renting for up to £1,800 a week and one- and two-bedrooms flats fetching £1,550.

‘His Majesty’s Inspectors of Taxes have always taken a close interest in money making activities during the Wimbledon tennis tournament as we know that hundreds of houses have been let out to players, officials, and tennis fans.

Local estate agents may have help rent out properties in the Wimbledon area and once again residents will be cashing in on the thousands of spectators, renting out driveways for parking, selling cold drinks and refreshments and even strawberries and cream.

But they need to be cautious and make sure that they declare to the Revenue what they earn where they need to. If they don’t, they could face hefty fines and penalties and their activities might well spark an unwanted investigation into their finances.

We know there are always at pains to make sure that those that wish to let their properties understand that this is not ‘easy money.

If they rent out a house, they need to have both gas and electrical safety certificates in place. They also need to ensure that they declare what they owe and of course we as responsible estate agents are required to report what payments are being made to them.

‘There has been huge interest this year from residents wishing to let their properties but also from people who are attending the tournament who wish to rent. These range from individual players to umpires, a company renting a large property for corporate entertainment to individuals who just wish to have their own space when they are attending the tournament.’

While the earnings from rentals are lucrative, the tax liabilities must not be ignored.

Renting your property out can be extremely lucrative but Wimbledon residents need to play the game and follow HMRC rules. Failure to do so can result in fines, penalties and in the worst-case scenario, where the Revenue feel that they have been defrauded, they could end up in court.’

Tax liability

There are two allowances which may help Wimbledon residents with small amounts of extra income.

The trading allowance exempts the first £1,000 of trading income per annum and would cover, for example, selling strawberries or bottled water from outside a home.

The second allowance covers the first £1,000 of rental income, which would include income from letting out parking spaces or driveways as pitches for traders.

If a taxpayer does not already file tax returns and their trading or rental income is below these allowances, they do not need to tell HMRC, but if the income exceeds these allowances the taxpayer may need to register for self-assessment.

For those individuals renting out rooms in their own homes the income can be tax-free provided it does not exceed certain thresholds. The Rent-a-Room scheme generally applies to taxpayers who are living and physically present in the property during some part of the letting period. The relief is separate to the rental income allowance and the two cannot be used together.

Gross receipts of up to £7,500 may be received before tax is due. This limit applies to a tax year and whilst it can be reduced to £3,750 per person if the property is owned jointly, it is not reduced according to the letting period.

Under the scheme, expenses cannot be deducted from the gross income and any excess income above the £7,500 is taxable. The alternative method available to taxpayers is to tax all rental income and claim deductions for allowable expenses.

‘For individuals who are already registered for self-assessment, any rental income must be reported on their annual tax return regardless of whether the Rent-a-Room scheme applies, and the appropriate box should be ticked to claim the relief. For those not already in self-assessment and whose rents are below the relief threshold, the exemption applies automatically, and it is not necessary to register.’

If Rent a Room relief does not apply the rental profits are taxed at the taxpayer’s marginal rate. While expenses relating to the letting can be deducted to arrive at the profit, it is important to remember that mortgage interest relief is now restricted.

HMRC’s electronic checking system Connect routinely collates information from over 30 databases including details of taxpayers’ salaries, bank accounts, loans, property, and car ownership. HMRC also has the power to request one-off bulk data from third parties where there may be cause for concern. The system allows HMRC to look at taxpayers’ day to day activities even down to ticket sales and passenger information supplied by airlines.’

Penalty regime

The penalties for failing to declare income correctly and promptly can be significant.

For those taxpayers not in self-assessment the deadline to register is six months after the end of the relevant tax year (by 5 October 2024 for income earned in the 2023/24 tax year).

The penalties for submitting a late tax return start at £100, rising to over £1,000 plus up to 100% of the tax due, depending on the date of submission and whether HMRC consider that the taxpayer has deliberately withheld information.

Interest will be charged on late payments of tax and late payment penalties may also be charged of up to 15% of the tax due, depending on when payment is made.

Other Events

Although this article focused on Wimbledon there are other events not just sporting this may apply to:

• Royal Ascot
• Glastonbury
• FA Cup Final Wembley
• Premier League football Matches
• Henley Regatta
• Olympic Events