Landlords can earn up to £7,500 tax free with the Rent a Room scheme. Keep reading to find out who is eligible and how much you can charge your lodger.
Thanks to a revision of the Rent a Room scheme, taking a lodger on board has never been more beneficial. Not only do you gain a new housemate to socialise with, you can earn some extra cash by charging rent, with £7,500 of this money being completely tax-free. You can enjoy meeting new people and reap the rewards just by making use of an empty room. Sound good? Keep reading to learn everything you need to know about the Rent a Room scheme.
What is the Rent a Room scheme?
Introduced in 1992, the Rent a Room scheme is for those who rent out a furnished room in their main home. Renting out storage doesn’t count in the scheme, nor does renting out anything other than living space. You’ll only be eligible if the room is part of your main or only home at the beginning of the let – and the room must be furnished.
Those who let out their property solely while they are away – such as when going on a short-term holiday – have been eligible the Rent a Room scheme in the past. However, a possible rule change may occur in 2019 that no longer allows this type of let to fall under the Rent a Room scheme. Landlords don’t have to worry too much – you’d still be allowed to go on holiday, this just means that you live at the residence most of the time.
How much can I charge a lodger without paying tax?
Good news for people with a spare room – you can earn up to £7,500 per year absolutely tax-free. This is only reduced if another person receives income from letting out the same property, such as your partner or a joint homeowner. In this case, the Rent a Room scheme allows each person to earn £3,750 tax-free from their lodger.
This figure includes:
- Any money you receive for services such as cleaning, meals and laundry
- Balancing charges
- Rental income before expenses
How much you charge your lodger is up to you, but it’ll only be tax-free below the threshold. There are plenty of ways to find out how much to charge, such as using Badi to check the prices in your local area to gauge the going rate in your market.
How do I opt into the scheme?
To opt-in for the scheme, you should let HM Revenue & Customs know this on your tax return. As long as you don’t go over the £7,500 or £3,750 yearly threshold, all the money you earn from a lodger will be tax-free.
According to GOV.uk, if you earn more than the threshold, you have two different options:
- Method A: Paying tax on your total income – disregarding the threshold – minus your expenses.
- Method B: Paying tax on the profits above the threshold, without deducting expenses.
Even those who go over the threshold can benefit from the scheme, just make sure to keep organised and keep track of your receipts and get professional advice if you are not sure.
With a number of fun filters and an easy to use in-app chat, Badi makes it easy to find the perfect lodger. Check out our Badi and start your search today.