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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: property and investment income

Hana lets a furnished room in her home to a lodger and receives £9,000 in 2025/26 with actual expenses of £1,000. She is a higher rate taxpayer. Under the exempt amount method, how much of her letting income is taxable?

£1,500 is taxable. Receipts of £9,000 are reduced by the £7,500 rent-a-room limit, with no deduction for actual expenses. This is lower than the actual profit of £8,000, so electing for the alternative method gives Hana the best result.

  1. A£8,000
  2. B£1,500Correct
  3. C£0
  4. D£9,000

Explanation

Receipts of £9,000 exceed £7,500, so the relief is not automatically complete. Under the rent-a-room method, taxable income is receipts less £7,500 = £1,500, with no deduction for expenses. Actual profit would be £8,000, which is higher, so the £1,500 is lower.

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