The Government’s new Rent a Room Scheme is set to make renting out individual rooms within homes an increasingly popular practise. The system is designed to encourage people to take in lodgers.
The scheme lets people earn up to a threshold of £4,250 per year tax-free, from letting accommodation in their houses. This figure is halved if the income will be shared with a partner, or someone else
Rent a Room Scheme
A room or entire floor of a property can be let out, however the scheme cannot be used for homes converted into separate flats. Rooms let as an office or for other business purposes also don’t apply. Areas must also be furnished to qualify.
The tax exemption on earnings is automatic if occupants earn less than the threshold. The scheme can be opted into at any time if you’re either a resident landlord – you do not need to own your home – or if you run a bed and breakfast or guesthouse.
If your gross income is above the Rent a Room limit, you can either pay tax on your profits in the normal way for rental businesses, or pay tax on your gross income less than the £4,250 limit.
Director of SpareRoom, Matt Hutchinson thinks that this threshold is “unrealistically low”, however. “Particularly for cities where rents are rising fast,” he says. “78% of rooms generate annual rent of more than £4,250.”1
Mortgage lenders or landlords must be informed if you begin renting a room, as you could potentially be breaching the terms of your mortgage, lease or insurance.
Hutchinson has explained that renting out rooms may be hard work, but could help individuals take in higher yields.
He also expects that an increasing number of people will take advantage of the scheme because they cannot afford the costs of living alone. It was reported recently that millions are using payday loans, or other forms of credit, to help them with rent or mortgage payments.
Mr. Hutchinson explained who could be looking to take the rooms: “A lot more people are looking to rent rooms because they are only getting enough benefits to cover a room rather than a one-bed flat.” 1