Back in July of last year, the Chancellor announced in his budget that landlords would be able to make up to £7,500 without paying any tax.
The new rules (known as the Rent a Room scheme) came into place this month, so do you fancy making a little bit of extra cash on the side just by renting out your spare room?
If so, read on to find out how you could benefit!
Up until this month, anyone who rented out a room to a lodger would have to pay tax once they earned over £4,250 a year.
But following the budget last July, this cap was raised to £7,500. It’s a fairly big change and the first one since 1997.
It’s all part of an attempt by the government to tackle the current housing crisis by making the most out of the limited housing available.
And according to this research from Love Money, unless you’re letting out a property in London, you’re probably not going to earn above the threshold, so won’t have to pay any take at all on your income, so it’s definitely worth thinking about!
Is it for me?
While the financial benefits are clear, some people may be apprehensive about whether they want to take on a lodger.
One particular group who have been found to benefit from taking on lodgers are parents whose children have flown the nest and moved out.
For those who have a big house with very few people living in it, things can feel a little lonely and it can be nice to have others around the house while also making a nice bit of money on the side.
What you need to do
If you are interested, head to a website such as RoomBuddies who will be able to help you advertise your room and find a lodger to suit you.
However, it isn’t as simple as just finding someone and getting them in. There are a number of important checks you need to make before a lodger moves in to ensure that you qualify for the tax break.
If you aren’t set to exceed the £7,500 threshold (and like we said, you likely won’t) then you don’t need to do anything in terms of tax as you’ll be automatically exempt.
If you do go over the cap, then you’ll need to fill out a tax return to let HMRC know that you’re opting into the Rent a Room scheme.
If you’re paying reduced council tax, then taking on a lodger will affect this and you’ll likely have to pay the full amount (unless your lodger is a student, or perhaps only a Monday-Friday lodger who is paying tax elsewhere).
Of course, you can add this onto your lodger’s rent, but it will be added toward your £7,500 threshold.
Make sure to let your home insurer know if you’re taking a lodger on. Obviously having more people in your home puts your contents at more risk in the eyes of insurers and while it likely won’t affect your policy, they could turn down a claim if you haven’t let them know about your lodger.
Also, make sure you carry out some checks on your potential lodger. Get some references from previous landlords, and make sure they don’t have any outstanding criminal convictions as this will obviously not go down well with your insurer.
While you might not think it, it’s important to check with your mortgage provider (or landlord if you’re renting your home) to make sure it’s ok to take on a lodger.
Again, they’ll probably be fine with it but you do need their permission, and perhaps sign a formal letting agreement.
While taking a lodger might not be for everyone, it’s certainly worth thinking about, especially when you consider you could be bringing in an extra £7,500 a year!