Here at badi, we’re big believers in the joys of renting out a room and the benefits that it can provide. Living in the city is not always easy, so having much-needed help with bills can be a huge boost, while letting out space may lead to new friendships which last for a very long time.
However, if that was not enough to encourage you to rent a room, did you know that finding the right tenant through badi could also offer you the opportunity to earn some much-needed tax free rental income?
Here we take a look at how you can do that and get a little more cash in your pocket in the process.

How can I rent a room tax free?

Put simply, the government runs an initiative known as the Rent a Room Scheme. In its most basic terms, the concept allows you to earn up to £7,500 of tax free rental income every year from simply letting out furnished space in your property.
You can opt into the scheme at any point if you are a residential landlord or even if you run a bed and breakfast or guest house.

How does the Rent a Room Scheme work?

It is fair to say it is straightforward if you earn less than the £7,500 threshold, as the exemption is automatic, and you do not have to do anything at all.
However, you would need to complete a tax return if you earn over that level. You should also bear in mind that the threshold is reduced if you share the rental income with another individual like a partner.

So, what happens if I do earn more?

Ultimately, you will have to pay tax, but you have two options in relation to how. These are:
  • That you pay tax on your profit, which would be your total income minus any expenses.
  • Or that you pay tax on any gross receipts above the threshold, but do not deduct any expenses.
It is up to you as to which method you opt for and you can also switch between the two from year to year depending on what is best for your situation.

When can you not use the Rent a Room scheme?

It is worth knowing that the scheme may not be applicable in some arrangements, including when the accommodation in question is not furnished or is used as an office or for any business.
As you might expect, it could be useful to check the small print to ensure it fits your scenario.

Start earning tax free rental income today

Offering up a room to let can offer big benefits, with the potential financial boost undoubtedly being one of them. The Rent a Room scheme could prove to be very useful to you as you look to rent a room tax free, so we would encourage you to consider whether it would work for you.
Find your badis and secure some tax free rental income today.