If you are lucky enough to have a furnished room going spare in your home, or if you might manage a bed and breakfast, you could be eligible to participate in the Rent-a-Room scheme. Introduced on 6th April 2016, the scheme allows a resident landlord to earn up to £7,500 (previously only £4,250) tax-free annually for letting out space in their home. There are some restrictions however as the scheme does not apply to the following types of accommodation:
- A home that has been converted into separate flats
- An entire home, rather than just a part of it
- A room that is used as an office or for any type of business (however, the scheme does apply if the lodger works in the home in the evenings or on weekends, or is a student who is provided with study facilities)
If you are living abroad and let your UK home then the scheme does also not apply. If over the course of the year you earn less than £7,500 from letting out a furnished space to a lodger, the tax exemption is automatic and there is no additional paperwork that you would need to complete. If you do happen to earn more than £7,500 from letting, you must then complete a tax return and state that you are opting into the scheme.
The positive news has been that since the rate increase was announced in the Summer Budget 2015, almost a quarter of a million homeowners have advertised for lodgers. Whether you let a spare room for the weekend or for several months—it could prove quite beneficial financially. However, rather than jump in the deep end and start letting that spare room, there are a few things to bear in mind:
- Be sure to check your home insurance policy to ensure that you are covered if you take in a lodger.
- Your mortgage lender will need to be notified that you are considering letting a spare room.
- Review the tenant’s rights and responsibilities along with your safety responsibilities.
- You will need to draft an application for potential tenants. This could include the following: references from at least two previous landlords, employment details and basic personal information. In addition, the application should explain that your contents insurance policy does not protect tenants’ personal items.
Source: Zywave personal lines perspectives