Does the prospect of a little extra income, up to £625 per month, tax free, sound good?
If so why not consider renting out your spare room? By signing up to the Rent a Room scheme, not only do you enjoy the extra income but up to £7,500 a year is free from tax!
The scheme is open to owner occupiers or tenants who let out furnished accommodation to a lodger in their main home.
If the amount you receive from letting is less than £7,500 your tax exemption is automatic and you don’t need to tell HMRC.
Any money you receive for providing meals or laundry services must be added to the rent you receive to work out your total income.
If you charge your lodger more than £7500 over a tax year you can either:
- Pay tax on your actual profit from the property (calculated as income received less allowable expenses), or
- Pay tax on the income you receive less the tax free £7,500 but with no allowance for any expenses
Rent a Room is optional and you may find that it is more advantageous to claim expenses so do take care in working out what’s best for you. Whatever you decide, ensure you keep records of your income and expenses.
If you are considering taking a lodger in for the first time and have a mortgage on your home, don't forget to check that your mortgage agreement allows you to rent out a room. Also if you're a tenant, be sure to check that letting out a room is ok with your landlord. It’s important to remember to check out your home insurance policy terms.