The UK government has been running the rent a room scheme for a number of years, and it’s an excellent way of earning some extra income, tax-free.
Anyone with a spare room in their house can rent it out as furnished accommodation and there is a tax exemption if you earn up to £7,500 a year (or £3,250 if you are jointly letting the room with your partner).
If the amount you earn is lower than the threshold then the tax exemption is automatic. However, if you earn a greater amount a tax return will need to be completed even if you don’t usually do so. You can then do either of the following:
– Opt into the scheme and complete your tax return in order to claim your tax-free allowance.
– Choose not to opt-in and simply include your income on the property pages of your tax return.
Full details and help sheets are available on the government site.
Things to consider before you advertise for a lodger
Check that renting out a room in your house doesn’t affect any means-tested benefits you receive such as housing benefit and income support. Also, any reduction you may receive in council tax if you were living alone will no longer be available.
If you own the property check with your mortgage company that you are able to rent out rooms under your mortgage terms. Also, check with your home insurer if you can take in lodgers under your current insurance contract and make any necessary amendments. You can still use the rent a room scheme if you rent a property, but make sure that it is permissible under your lease terms.
Keep records
Even though you can’t claim for any expenses of renting out a room, you should keep records. Keeping an inventory of the furnishings in the rented room is also a good idea, and using property inventory software such as that from https://inventorybase.co.uk/ makes the task easy to carry out.
Renting out spare rooms in your home is a fantastic way of earning some extra cash, but do make sure that you are able to do so with the necessary authorities and make sure that your tax return shows the income, even if you are below the tax threshold.