You may need to pay tax on rental income you receive from private boarders or home-stay students.
Boarders and home-stay students are different to flatmates:
- Flatmates share a house, expenses and chores. Usually one flatmate will be the tenancy holder.
- Boarders and home-stay students rent a room in a private home. They also get meals and other care and services as part of their rent.
You may or may not need to pay tax on the rental income you get from boarders and home-stay students. There are two different methods to work out your payable tax. The standard cost method and the actual cost method.
Standard cost method
You may be able to use the standard cost method if you did not have five or more boarders at any time in the year.
This method uses a standard weekly amount to cover the cost of the boarder's living needs. This covers needs like:
- phone and internet
- use of furniture
- entertainment and leisure.
The weekly standard-cost amount is set by us. It's an average of the likely weekly living costs incurred in having boarders. It is inflation-adjusted annually. The weekly standard-costs for the year ending 31 March 2019 are:
|Number of boarders||Standard-cost for each boarder per week|
1 or 2
3 or 4
If your income from boarders is more than the weekly standard cost amount, you can also include a housing standard cost amount.This amount is calculated with a formula. It reflects your likely housing related costs and covers expenses such as:
- home insurance
- mortgage interest or rent
- repairs and maintenance.
The formula takes into account the:
- period the boarding service is provided
- proportion of boarders compared to the average number of household occupants.
Check the standard cost home-based boarding services calculator to see if you have to pay any tax on your rental income from boarders.
Check if you need to file a tax return for income you get from having boarders living in your home.Go to this tool
If your income from boarders is less than the total standard costs, you do not need to:
- include any of the income from boarders in an income tax return
- keep records of related expenses
- pay tax on the income from boarders.
If your income from boarders is more than the total standard costs, you will need to include the excess income in a tax return. Alternatively, you could consider using the actual cost method.
From the 2019-2020 income year, the weekly standard cost amount will be reducing. This is because the weekly amount included allowance for transport, which is not commonly provided to boarders.
The new standard cost method will have the same weekly amount for all boarders. There will no longer be a reduced rate for 3rd and 4th boarders.
If you provide transport to your boarders, the new standard cost method will allow you to include an amount for transport related costs. This will be available if your boarding income is more than the weekly and housing standard costs.
Actual cost method
If you have 5 or more boarders or home-stay students, you must use the actual cost method. You can also use this method if you are eligible to use the standard cost method but choose not to. To use this method, you will need to:
- keep full records of your actual income
- keep full records of your expenses
- complete an IR3 annual tax return to return income and claim actual expenditure incurred.