Income Tax (Trading and Other Income) Act 2005 section 783AN

Exclusion from relief: expenses deducted against rent-a-room receipts

Section 783AN prevents an individual from claiming the trading allowance in a tax year where they qualify for rent-a-room relief but have chosen to deduct actual expenses against their rent-a-room income instead of using the rent-a-room exemption.

• The trading allowance is denied where an individual qualifies for rent-a-room relief and has rent-a-room receipts that would otherwise be taxable as trading income or miscellaneous income
• If rent-a-room receipts are within the rent-a-room limit (currently £7,500) but the individual has elected to disapply full rent-a-room relief in order to deduct actual expenses, the trading allowance is not available
• If rent-a-room receipts exceed the rent-a-room limit and the individual has not elected for the alternative calculation method (receipts minus the rent-a-room limit) but instead deducts actual expenses, the trading allowance is again not available
• The purpose of this rule is to stop individuals from combining the benefit of the trading allowance with the deduction of actual expenses when calculating profits from rent-a-room activities