If you have a spare room in your home you have the potential to earn £4,250 tax free through the rent-a –room scheme that the Government has brought in. A spare room or two in your house could make 2011 a very profitable year for you. There is a mini boom in the rental market according to Lettings Agents, particularly in London, where demand is far outstripping supply.
This shortage is making some landlords greedy, and they are charging an average of £600 a month in the capital for just a room. It is this that has caused the Government to come up with the rent a room scheme. £4,250 a year per room tax-free is not to be sniffed at for letting someone stay in your furnished spare room.
To qualify to take part in the scheme, the property must be your main residence and you must live there with the tenant/s part of the year. The sum received can either be on a room only basis, or you can include the likes of cleaning, laundry and meals at your discretion. The scheme will not cover a house that has been turned onto flats or bedsits, or unfurnished rooms.
If you earn more that the £4,250 from renting out your room, this figure has remained the same since 1997, you will have to work out if you are better off by declaring your rental income on your tax return and paying tax normally. There are no expenses that can be claimed through the scheme to cover the likes of repairs, wear and tear or insurance. Whereas opting out may be beneficial of you are earning a lot more than the £4,250.
The Government is keen to point out that the scheme isn’t just for homeowners, those who rent can sublet as long as their tenancy allows it, and their insurance policy covers it. Homeowners should also check that their mortgage agreement allow them to take in lodgers.
Bear in mind that lodgers doesn’t mean you have to share your home with them all the time, in keeping with the latest trend you could rent your room/s out from Monday to Friday and still receive the tax free allowance. This gives you some privacy, and your room will be empty at weekends for any family staying or other visitors.