What Is The Rent A Room Scheme And How Can It Benefit You?

If you own a home but you’ve got a spare room and not much to do with it, it’s definitely worth promoting a rent a room scheme in your home. When you’re renting out your spare room, there are a lot of perks included, particularly when it comes to the financial aspect.

Not only will you be receiving funds from the person who has moved into your home instead of footing the bill yourself, but you’ll also have a tax-free rent a room allowance.

What is the Rent a Room Scheme?

The Rent a Room Scheme allows you to rent out a spare room in your property and enjoy up to £7,500 tax free.

This is halved if you share the mortgage with someone else, so in order to remain under the threshold, you’d need to charge £625 or below, including bills, per month. If you’re renting out a spare room in your house, you’ll need to do a tax return if you earn more than the £7,500 threshold. However, if you’re not affected by it, then you’ll automatically be exempt.

There are many ways to take advantage of the rent a room scheme, including if you let a furnished room to a lodger, or your letting activity amounts to a trade, such as running a guest house or providing services. However, if it’s not furnished, you’re unable to take part in the scheme, you also are unable to offer a room out if they’re staying in your home while you’re living abroad.

Depending on what you’re offering to your lodger, you may wish to provide meals and services such as washing and ironing. Any financial gain from the services needs to be added to the rent you receive to work out the total income. If the money from the additional services combined with the rent amounts to more than £7,500 you’ll need to submit a tax return.

What are the perks of the Rent a Room scheme?

1. There are many perks of taking part in the rent a room scheme, and it’s not all based on boosting your income and tax breaks. Here are just a few:

2. The process is quite simple to start, it’s very different in comparison to being a traditional landlord. There are no legal obligations to sign a tenancy agreement, though it’s safer to do so.

3. It’s beneficial if you’d rather have company in your home, particularly if you’ve had someone recently move out. Their company in the evening may increase feelings of security and your house may feel more comfortable.

While it may seem like a good idea to rent out a room, there is a lot to consider before you put out your ad. Firstly, if you’re still paying off your mortgage, it’s important to get confirmation from the mortgage lender that you can let out your home. If you don’t get approval, you may be in breach of your terms. It’s also advisable that you look into your home insurance and make accurate adjustments because it’s likely your premium will increase. 

What if I live in social housing?

The system is slightly different if you’re renting out a room in social housing, but it is still possible to take a lodger. It’s important to discuss the possibility of having a lodger with the council or housing association.

If you can take a lodger and you’ve been receiving Housing Benefit, you need to inform the benefits office. The way any additional income is treated will depend on what you currently receive from the council. For example, if you don’t receive Universal Credit, your Housing Benefit won’t be reduced. If you do receive Universal Credit, you could be subject to the removal of the spare room subsidy, meaning you would receive less Housing Benefit. To get more information on getting a lodger in social housing, get in touch with your local council or housing office.

What to think about before taking on a lodger

When considering a lodger, you need to consider the condition of your home and ensure that they are safe at all times. Any furniture or floorboards need to have a safety inspection and gas safety regulations need to be enforced yearly.

There are some negatives that come with having a lodger, particularly if you’ve not had one before. Getting to know someone new is a difficult process for many people, particularly when you need to understand new habits and lifestyle choices. For example, you might find that mess and clutter increase, particularly because it’s not just yours anymore. It’s all about finding the right person who can fit in with your lifestyle.

You’ll also lose some element of privacy although the lodger will have a room, they’ll also need free access to the living room and kitchen, which means you’ll need to bear in mind there will be another person in your home. For many people, it’s a big change to bring someone else into their home, and it’s necessary to weigh up the pros and cons before you make the decision.

Once you’ve spent time considering your decision about whether you’re going to get a lodger or not, you may need to launch the process. When you launch your ad, sell your listing to the reader, but make sure you describe what you’re looking for, make it personal – try and make sure your personality matches. Many people become friends with their lodgers, so it’ll make the experience all the more positive if you can find someone who suits your personality type.

After you’ve picked your lodger and get the approval to bring someone new into your home, ensure you’ve done all of your safety inspections and prepare the bedroom. Once you start getting your payments, you’ll find it’s an easy process, particularly if you’re not earning over the threshold.

Key takeaways:

      • You can earn up to £7,500 tax-free if you rent out a furnished room to a lodger.
      • You can still rent out a room if you’re in social housing, with the council’s approval.
      • Find the right fit for you, you’ll be happier with your lodger if you can get on.

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