If you rent out a spare room, whether
to a lodger or to holiday or business travellers, there is good news in store.
The Rent a Room scheme has since
its introduction a few years back offered the opportunity to earn extra income.
It’s a programme that is open to owner occupiers or tenants of rental
properties (whose tenancy agreement allows) who are able to let furnished
accommodation to a lodger.
Up until now, the scheme has
allowed the people doing the renting to earn up to £4,250 a year tax free, or
£2,125 if renting out jointly. This amount has been frozen since 1997. However,
from 2016 this amount is set to rise to £7,500 and £3,250 respectively.
The additional allowance is worth
£1,300 a year to a higher rate taxpayer, and £650 a year to a basic rate
taxpayer.
Who Qualifies for the Rent a Room Scheme?
As long as the property is your
main residence and the room you are renting is furnished, you are permitted
under the scheme to earn up to £144 per week in rent. If you are a tenant
rather than a homeowner, then you will need to have a clause in your tenancy
agreement allowing you to rent a room.
According to Spareroom.co.uk it
is estimated that in England there are 19 million empty bedrooms, many of which
are in the homes of pensioners who find themselves unable to downsize. A lot of
the other empty rooms belong to ‘empty nesters’ whose older children have flown
the nest.
What you Need to Know About Tax
If you are earning less from
renting a room than the threshold of the scheme - £7,500 per year from 2016 –
then you don’t need to do anything as your exemption from tax will be
automatic.
However, if you are earning more
than the threshold, then you will need to complete a tax return. In doing so,
you can either choose to opt in to the Rent a Room scheme, in which case you
will need to state this on your tax return so you can claim your tax-free
allowance, or you can decide not to opt in, in which case you just set down
your income and associated expenses using the property pages of the tax return.
If you are new to tax returns
then you will need to contact HM Revenue & Customs (HMRC) to request one,
and you can do this using this link.
Of course, your local bookkeepers
will be a mine of information and advice on the subject, so why not seek out
their help?
