Recent changes in the law mean that landlords can now make up to £7,500 a year by renting out their spare room without paying any tax at all!
However, to make sure that you benefit from the ‘Rent a Room scheme’, you have to make sure that you stick to the rules, so we’ve outlined what you need to know.
Are you eligible?
The scheme is open to any homeowner who rents out a room to a lodger (as long as they live in the property themselves).
You may also be able to sub-let if you’re renting a home, but you’ll have to check that this is all ok with your landlord first.
It’s worth noting though that the £7,500 tax-free only applies per home, not per landlord, so if you’re letting with a partner you’ll both be eligible to earn £3,750.
Do you need to opt in?
You only need to opt into the scheme if you earn more than the £7,500 threshold, although this is fairly unlikely unless you’re letting an expensive property in London.
However, if this is the case, you’ll have to fill out a tax return and let HM Revenue & Customs know that you’re opting into the scheme.
For more information about tax returns head to gov.uk.
Are you allowed to charge extras?
Some landlords choose to charge extra amounts for things such as meals or providing laundry services.
While you can make these charges, they will be added to your rent to calculate your total income.
How to pay tax
If your total income from rent and other charges does exceed the £7,500 threshold, you will need to pay some tax.
You can either pay tax on your actual profit (income minus expenses) or on gross income minus the £7,500 with no allowances for expenses.
Can you still benefit if you run a B&B or guest house?
Yes, you can!
To be on the safe side, it’s very important that you keep as many records as possible regarding your income and expenses as you will need these if you do need to pay tax further down the line.
Who do you need to let know?
Before you take your lodger in, you’ll have to check that it’s ok with a couple of people.
Firstly, you’ll need to check with your mortgage provider to make sure that it’s ok with them to rent out a room under your mortgage agreement.
You’ll also need to ask your home insurer to make sure that it is ok with them.
And as mentioned, if you’re currently renting your home then you’ll need to make sure that your tenancy agreement allows this.
As a landlord, you will have a couple of responsibilities to your lodgers. You must make sure that your home is well maintained and safe. This means keeping things such as your gas and electrical equipment is well maintained and fitting working smoke alarms.
It would also be wise to ask your lodger for a couple of references before agreeing to take them on, and follow these up to get an idea of whether they’ll be a good lodger.
Renting out your room can be a great little earner, especially with the new tax rules, so it makes sense to take advantage.
Just be sure to play by all of the rules so that you don’t get caught out!