A new report has suggested that the upcoming Rent a Room Scheme will be beneficial to the vast majority of homeowners.
Research conducted by SpareRoom.co.uk shows that homeowners in 29 of Britain’s 30 largest towns and cities will be able to earn tax-free rental income when the scheme comes into effect in April 2016.
Data from the report shows that only rents in the capital are greater than the £7,500 eligibility threshold. Under the current scheme, those letting furnished rooms to lodgers below the £4,250 per year threshold must declare tax on earnings in 73% of the 30 largest towns and cities.
Average rents in Aberdeen were found to be £520 per month, the highest in Britain outside of London. This means that a live-in landlord letting a furnished room to a lodger could earn £6,240. Brighton represents the next highest rent of £510, equivalent to £6,120 per year. From April 2016, when the threshold is raised to £7,500 per year, these earnings will be completely free.
In terms of UK capital cities, the largest annual lodger increases over the past twelve months were in Cardiff, where rents were up by 10.7%. Edinburgh came in next with a 10% rise, with Belfast seeing growth of 8.7% and London 5.3%.
‘The increase to the Rent a Room scheme threshold is long overdue, having remained fixed since 1997,’ said Matt Hutchinson, director of SpareRoom.co.uk. The extra cash could really help when interest rates rise and mortgage payments follow. It’s great news for renters too,’ he continued.
97% of homeowners to get tax-free income from April
‘In the midst of a housing crisis and with building levels lagging well behind required targets, the new Rent a Room Scheme threshold should incentivise more cash-strapped homeowners to let their spare rooms, increasing the supply of affordable accommodation and reducing the pressure on rents. It’s something we campaigned for over six years, so we were thrilled to get a call from the Chancellor’s office on budget day to let us know it was happening. Even if we build at the levels we need we’ll only increase housing stock by 1 or 2% a year so making better use of existing stock is vital,’ Hutchinson stated.
Concluding, Hutchinson said, ‘It’ll be interesting to see what happens in the run up to April. It’s likely many will start taking advantage of the current tax break this tax year. Freeing up just 5% of the 19 million spare rooms in England alone would accommodate almost a million people, the equivalent of a city the size of Birmingham. Watch this space.’