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Could you earn thousands renting out your room?

Last week’s Summer Budget brought a lot of changes in – some being better than others. One benefit you may be aware of is the Rent a Room Scheme, which allows you to rent out your spare room to a tenant or lodger, with a certain amount tax-free. Now the tax-free threshold has been pushed up, is it worthwhile for you?

From next April you can rent out your spare room for £7,500 tax-free, a nice boost for homeowners looking to maximise their income.

The Rent a Room tax-free threshold has been the same since 1997 at £4,250, so the extra £3,250 could make a big difference, especially if you look at rents across the country.

According to SpareRoom, the flat and house share website, the average UK room rent is £6,071 per year, and in London, it's a staggering £8,335 per year.

If you’re considering it, here’s what to think about first so you can work out whether the scheme is worth it for you.  

Is the Rent a Room scheme right for you?

Most homeowners will be eligible for the Rent a Room scheme, but renters will need to check with their landlord. It’s also worth checking with your home insurance provider to make sure your policy allows you to have a lodger.

The scheme itself is opt-in. Either way, you need to record any lodgers on your tax return.

It’s also worth knowing that any advantage of signing up to the scheme may be outweighed by the fact there are some expenses related to the letting you cannot claim.

So if you have to spend money repairing a faulty washing machine or an exploding boiler – or there’s wear and tear you need to patch up – you can’t deduct that expense against your income under the Rent a Room scheme, in order to reduce the amount you have before you hit the threshold.

You will also still be responsible for Council Tax – but you can include part of the cost in the rent you charge.  Don’t forget you must tell your council if having a tenant means you’re no longer entitled to a single person discount or you could find yourself in trouble!

If you pay the utility bills for your whole house, you can include a charge in the rent or, if you’d prefer, install pre-paid meters.

If you choose to do the Rent a Room scheme, you’re not legally required to protect a tenant’s deposit with a government-approved scheme. Your local council may guarantee rent for a potential tenant who can’t afford a deposit.  

Don’t forget, if you earn any money over the threshold, you must fill in a tax return, even if you don’t normally.

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