The Inside Edge
If you’re looking for a little extra income and you don’t mind sharing your home, letting out a room could be a great solution. You could potentially make up to £4,250 from letting out a spare room and what’s more, it’s tax free!
The Government’s Rent-a-Room scheme offers some really great tax advantages and makes it easier to take on tenants. Our guide tells you how to find the right tenant and the type of agreement you should make to ensure everything goes to plan.
Who can let a room out?
Anybody owning a property in the UK who uses it as their primary residence can rent to a tenant under the Rent-a-Room initiative. If you rent your property you may also be eligible depending on the terms of your lease. If you have a mortgage you should check with your lender and home insurance company to ensure you are not contravening any terms or conditions.
What are the advantages and disadvantages of letting out a room?
Of course, the main advantage to letting out a room in your home is money! When you let out a room you do not have to declare the income so long as the total doesn’t exceed £4,250 a year. This means you don’t have to worry about offsetting things such as accountancy services, bills, expenses, or cleaning services against your income.
However, the disadvantages of the Rent-a-Room scheme are also financial. For example, you cannot claim any expenses against the income you receive through the letting. Also, if you receive more than £4,250 per year on total (you may also be charging for meals and laundry services) you will have to declare the additional amount and pay the relevant amount of tax.
Would the scheme work for you?
Before you start advertising a room for rent it’s a good idea to sit down with a piece of paper and work out if the scheme is right for you. Think about how much you are likely to get in rent. You can look around local listings to find out how much the local rent rates are. Also, think about the additional expenses you may incur such as additional charges on your buildings and contents insurance, accountancy fees, and letting agents’ fees if you use one. You utility bills will also increase and you may have to pay for advertising the room. All of these expenses will be deducted from your total income so it is worth working out how much profit you could potentially make before you start.
If your likely income from renting out your room is likely to be in the region of £4,250 with little in the way of expenses then the scheme is a safe bet. If however, your expenses are more likely to be thousands of pounds then you would probably be best to declare the income and pay tax normally.
Finding the Right Tenant
Another VERY important consideration is the tenant. You are going to be sharing your house with a stranger. How does that sit with you? If you are happy to share your kitchen, bathroom and living space with a stranger then you’re ready to proceed. If not, then perhaps it may not be for you unless you can find a friend who needs a room to rent.
Finding a tenant should be pretty easy as there is a big call for rented rooms right now. Advertise in your local paper or on free local listings online. You could also use a letting agent although this will incur a fee. A tenancy agreement should be drawn up also and you can find templates online or ask your letting agent for assistance with this.
If you have a room in your home that you simply don’t use and that is suitable for letting then this is a great way of making a little extra income. More and more people in the UK are looking to rent so you should be able to find a suitable tenant very quickly.