Many people live in houses with spare rooms. Whether your kids have moved away to university, or you bought a house to accommodate guests staying round, these rooms often just sit empty. Renting out a room could be a nice little earner – netting you up to £7,500 a year tax free! However, make sure you stay up-to-date with your contents insurance and income tax to avoid any nasty surprises.
Rent a Room scheme
Renting out a fully-furnished room in your house entitles you to tax-free income, up to a point. Becoming the landlord of your own house could help pay off your mortgage or cover the bills. The Rent a Room scheme means you only have to pay income tax on rent that’s over £7,500, or £625 per month. Remember to check that your mortgage lender allows lodgers, though.
You can also take part in the scheme if you are a tenant, and have your landlord’s consent. Make sure your lease allows you to sublet your room, though, as otherwise you could be in violation of your tenancy agreement.
Working out income tax
If you are renting a room for over £7,500 per year, you will need to fill in a tax return. Declare the money you are earning, and then you can choose to either opt-in to the scheme, or opt-out – which affects how your tax bill is worked out.
Work out whether your expenses are larger or smaller than the tax-free threshold to determine how to pay the least tax. You can pay tax on your profit after the threshold, or on the gross income.
What you need to do
Make sure to keep your house safe and in good repair. This means you’ll have to pay for wear and tear, as well as ensuring the house is up to the safety guidelines the government enforces.
Your lodger’s belongings aren’t covered by your contents insurance, but you also need to tell your current insurer about the situation. Having your home insurance invalidated could be hugely costly in the future, so talk to insurers about your plans before committing to them.
Whatever kind of property you’re renting out, advertising on HouseSimple.com gives you access to a wealth of potential tenants looking for their new home.