Tax implications of student lets

As the new academic year begins, for student starting or returning to university, the 2020/21 academic year looks very different to normal. While many students may opt to stay at home and study online, those studying away will need somewhere to live – for many, this will be in private rental accommodation. The student market provides opportunities for landlords.

Letting an entire property

Landlords with a whole house to let can either let the house as a whole or can let individual rooms to unconnected tenants.

When letting to multiple households, landlords will need to be aware of the ‘house in multiple occupation’ (HMO) rules. A property is an HMO if there are at least three tenants forming more than one household and toilet, bathroom or kitchen facilities are shared. If at least five tenants live in the house forming more than one household and share toilet, bathroom or kitchen facilities, the property is a large HMO. The landlord will need to obtain a licence (and application for which can be made online on the Gov.uk website) and comply with the rules.

From a tax perspective, rental income from the let is taxed under the property income rules. All let properties which are owned by the same person or persons form a property rental business, with the taxable profits computed for the business as a whole rather than separately for each individual property. The landlord must declare the income to HMRC on the property pages of the self-assessment tax return unless it is less than £1,000 per year.

Letting a room in your main home

If you live near a university or college and have one or more spare rooms in your home, you may consider letting them to students to earn some extra cash. Where the rooms are let furnished, you can take advantage of the rent-a-room scheme. Under this scheme, as long as the rental income is less than £7,500 (or less than £3,750 where the rental income is shared with another person), you do not need to tell HMRC or pay tax on it.

If the rental income is more than £7,500 (or, £3,750, as appropriate), you can choose to pay tax on the excess or calculate the profit in accordance with usual rules. You will need to complete a tax return where this is the case.

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