I am currently not working and take care of my two young children jointly with my ex-partner. As I live in a four-bedroom home in London, I was wondering recently what the tax implications would be if I decided to rent out two of the rooms in my home. Looking at local ads, I expect the income from renting the rooms to be between £13,000 and £15,000 per annum. Given that I have an annual tax threshold of £12,500 and can rent a room under the rent-a-room scheme and not pay tax of up to £7,500, and have no other income, what tax am I likely to pay per annum?  

Arthur Weller replies:  

Answer: If you make an election (within the time limit) for the rent-a-room rules to apply, the first £7,500 will be tax-free, and the remainder will be covered by your income tax personal allowance, so will be tax-free. The remainder is calculated as your gross rental receipts over and above the £7,500 figure, without any deduction for expenses. See Method B in HMRC’s Helpsheet HS223.