Earn £7,500 Tax Free By Renting Out Your Spare Room

Written by Karen Bryan

£20 notes close up 320From 6 April 2016, you can earn up to £7,500 tax-free from letting out a room in your home. This is a large increase to the current £4,250 tax-free limit of the ‘Rent a Room’ scheme.

There are two options. You could look for a longer term lodger, or go for short-term lets, arranged through websites like airbnb.

The advantages of a longer term let are that you don’t have to spend so much time on admin, waiting for guests to arrive, and cleaning up after they leave.

The advantages of a shorter term let are that you can charge more per night, if you do have someone with whom you don’t get along with, they won’t be in your home for long, and you may only need to rent your room for part of the year to reach the £7,500 annual limit.

Which type of let you go for may be determined by the location in which you live e.g. there may be more demand from students than from tourists in your location.

Although £7,500 could be a very nice annual top-up to your income, it won’t be pure profit as there is bound to be an increase in household expenses e.g. higher fuel bills or the loss of a single person 25% Council Tax reduction. You’d also need to check with your mortgage lender, landlord and/or home insurer before renting out a room.

You need to think through the implications of having someone staying in your home. Sharing a kitchen and bathroom can lead to friction between inhabitants. Will you have house rules such as not allowing your lodger to have friends staying the night, or barring access to your living room? On the other hand, you may enjoy having company.

Personally, I wouldn’t be keen to share our home unless we really needed the money. I value my peace and quiet and privacy. If we did decide to rent out a room, I’d go for short-term lets so that I could plan for our spare bedroom to be available for visiting family or friends, and we’d still have the house to ourselves sometimes.