Letting Rooms In Your Home
If you own your home and have a spare room that you do not use then you might want to consider letting it out. If you live alone this can prove a useful source of income.
The Rent A Room Scheme
If you are thinking of having a lodger in your home then you can receive up to £4,250 a year tax-free (£2,150 if letting jointly). This is known as the Rent a Room scheme
How the scheme works
The Rent a Room scheme is an optional exemption scheme that lets you receive a certain amount of tax-free 'gross' income (receipts before expenses) from renting furnished accommodation in your only or main home.
Visit the Direct Gov site for more information on the Rent A Room Scheme|
Advice on Letting Rooms In Your Home
It may sound a good idea letting a room in your home, but get it wrong and it could be very costly.
If you are uncomfortable with the person who you are sharing with you may not even feel safe in your own home.
There are some worrying statistics about renting out spare rooms - 75 per cent of all resident landlords don’t vet lodgers and four out of ten feel uncomfortable in their own home, while 25 per cent of home owners say they’ve had such a bad experience that they’d never rent out a room again. (BBC - One Show|)
The main drawback is that if you don't have a friend or relation who needs a room it will mean taking in a stranger, which does involve a certain degree of risk and lifestyle change if you're used to living alone.
And remember if you choose to go for the Rent a Room scheme you usually have to provide a furnished room and your lodger will also be entitled to share the other living rooms in your home.
'When letting someone into your home you always need to be careful,' says Tessa Shepperson, lawyer and owner of Landlord Law Online (www.landlord-law.co.uk|). 'All your own things are lying around so you need to be comfortable that you trust this person. And you need to be sure you're going to get on at a personal level.'
If you advertise for a lodger in the local papers it is a good idea to ask for two or three references - with phone numbers for people you can call.
Lodgers are not seen as tenants in the eyes of the law. That is, if things were to go disastrously wrong you can evict someone without needing a court order.
But, Hardwick at the ASL says if house rules are set out from the start it will prevent problems occurring: 'Rent a Room is an informal arrangement so tenancy agreements and contracts aren't usually drawn up or required. However, it is sensible to have house rules and a set notice period that is reasonable and fair on both sides.'
As a landlord you are obliged to have any gas appliances checked by a registered engineer every 12 months. And Hardwick says it's a good idea to be aware of other health and safety issues.
'You are in a business relationship when you let a room so you are expected to act responsibly.
Although it isn't law, it makes sense to have smoke alarms fitted and keep a check on worn carpets that someone could trip on - it's not worth risking being sued,' he says.
If you want to charge more in rent than £81 a week you will have to declare the income or profits you make over this limit in any tax year on a self assessment tax return.
You can choose to either pay tax on your total profits, after expenses, or the amount of rental income you receive over the £4,250 annual limit - which ever is best for you. You can switch between the two methods in consecutive tax years, but you must inform the Inland Revenue which you want to use by January in following tax year.
On the plus side you can offset any expenses against the tax bill, which you can't do under Rent a Room. These include gas and electricity, water rates, insurance premiums for buildings and contents, maintenance and agents fees, among other things.
You cannot claim for furniture when you first buy it or for home improvements but you can clam for any necessary repairs. You are also entitled to a wear and tear allowance. This works out at 10% of the annual rent after the tenants' utility bills and council tax (paid by you) is deducted.
The Department of Transport, Local Government and the Regions has a free guide called Letting Rooms in Your Home -for your copy call 0870 1226 236.
Visit The HMRC for more information |
Visit this link for a beginners guide to renting a room in your house|