Election for rent-a-room relief alternative basis

If income from property does not qualify for rent-a-room relief only because it exceeds the maximum amount permitted, an election can be made to deduct the maximum amount from the income instead of the expenses incurred in generating it.

alternative method

A tax deduction equal to the full rent-a-room relief can be claimed where qualifying property income for a year is not automatically allowed because it exceeds the rent-a-room relief maximum, i.e. £7,500, or £3,750 if the property is jointly owned. This is known as the “alternative method of calculating profits”. An election will usually be advantageous if the rent-a-room maximum exceeds the expenses incurred in generating the income.  

The election can be used whether the letting counts as a trade, e.g. a B&B business, or as income from property. The election can be withdrawn for any year which the taxpayer does not want it to apply.

Example 

In 2023/24 Andrea receives B&B income of £9,000 and incurs expenses of £6,000. Because rent-a-room doesn’t apply automatically she would normally have to pay tax on her profit of £3,000. However, Andrea can elect for the alternative method to apply. This reduces her taxable profit to £1,500, i.e. £9,000 - £7,500.

Making a claim 

The alternative method can be claimed through a self-assessment tax return or in writing as a standalone claim. It must be made within four years of the end of the tax year to which you first want it to relate. For example, a claim for 2022/23 must reach HMRC no later than 5 April 2027. Once made an election remains in effect until the taxpayer withdraws it.