Thanks to the recent introduction of the Rent a Room scheme, those who rent out their spare rooms can now earn up to £7,500 a year, without paying tax.
But can everybody benefit? Do you need to let anyone know if you’re opting in? Read on for all of the answers.
Who Is Eligible?
You’re eligible to benefit from the scheme if you rent out a room in a home that you live in as your main home.
Although do bear in mind, if you let a room out jointly with someone else, the threshold will be split to £3,750 each.
You can also benefit if you run a B&B or guest house, and you may still be able to benefit even if you don’t own your own home, make sure to check with your landlord as they may be ok with you renting out a room.
Do I Need To Opt Into The Scheme?
You don’t have to do anything to opt into the scheme if you earn less than £7,500 in rental income (and chances are that you won’t unless you live in London).
This means that your tax exemption will be automatic and you won’t have to do anything.
However, if you do earn more than the threshold, you’ll have to fill out a tax return, even if you don’t normally.
All you need to do is state in your tax return that you’re opting into the scheme to claim your tax-free allowance. You can find out more about tax returns at gov.uk.
If you choose not to opt into the scheme, you’ll simply need to record your income and your expenses on the property pages of your tax return.
It’s up to you if you want to charge extra for things such as providing meals or laundry, but you must add the money that you make from this to your total income toward the £7,500 threshold.
If your total income does exceed £7,500 then you will need to pay tax, and there are two ways of going about this.
You can choose to either pay tax on your actual profit (income minus expenses), or pay tax on your gross (pre-tax) income minus the tax-free threshold, and with no allowance for expenses.
So which way works out best for you? The best way to figure it out is to add up your expenses. If they’re more than £7,500 then it’s best to go with the first option, but it’s probably best to go with the second option if they aren’t.
Bear in mind that you can change your method of paying tax each year if your circumstances change.
Is It Worth It?
Considering you can earn up to £7,500 tax-free, the simple answer would be a resounding yes!
However, do remember that you can’t claim any expenses, and this may outweigh some of the benefits.
Expenses can start to rack up once you take into account maintenance costs for wear and tear and even bigger problems, so take a moment to consider whether you’ll be better off under the scheme.
Do I Need To Let Anybody Know I’m Renting Out My Room?
There are a couple of checks that it’s wise to carry out before taking on a lodger. Firstly, if you have a mortgage, you’ll need to check with your mortgage provider first.
There’s no real reason why they should have a problem with you renting out a room, but it is important to let them know.
You should also check with your home insurer. They’re understandably going to want to know if there’s going to be someone else living in your home and it could increase the chances of you making a claim.
Again though, there should be no issues, it’s more just a case of letting them know.
And of course if you’re currently renting the property and don’t own it, you’ll need to check with your landlord. To find out more information you can read more about the Rent a Room Scheme on the This is Money website.