Making a spare room pay

By Jeremy Wright
Posted: 2009/04/15

TAKING in a lodger could ease your financial worries without upsetting the taxman

Amateur landlords may have taken a battering in the buy-to-let market but there is one way to make money from rent that involves far less financial risk.

Hard-pressed families trying to maximise their income are turning to local colleges and language schools to help them find student lodgers to take up residence in their spare rooms.

If you live near a major sporting event, such as Wimbledon, ou may be able to offer accommodation to fans.

As a bonus, many will find the taxman doesn't even want to know about their income - let alone grab a share of it.

Under the Government's Rent a Room scheme, if you let out a furnished space in your main home, the first £4,250 of annual rent is tax free. And, if you don't normally fill out a tax return, HM Revenue & Customs (HMRC) won't expect you to file one unless you breach this threshold.

You don't even have to own the property in order to qualify.

People who pay rent on a home can still let out a spare room under the scheme, as long as their lease allows it.

The major exception is that the scheme can't be applied to self-contained apartments, even if they are within the main house. Income from these must be reported to HMRC but expenses such as power, light, cleaning and maintenance can be deducted before tax is charged.

Under the Rent a Room scheme you will not be able to claim any of these deductions, so if your rental income is much more than £4,250 you might be better off paying the tax and then deducting the relevant expenses.

There is plenty of advice on the web for those letting a room, including the Government website Direct.gov.uk, as well as from a plethora of internetbased tenant-and-landlord matching services.

Spareroom.co.uk publishes a guide tailored to answer most queries from people taking in a lodger for the first time.

Spareroom's Matt Hutchinson says: "Taking in a student is a great way to earn extra cash from your spare room.

"You may lose a little privacy but you may well find the cons are outweighed by the pros."

The emailed guide includes lots of detail about the Rent a Room scheme, plus tips on making arrangements with your lodger as safe and mutually satisfactory as possible.

YOUR PRE-RENTAL CHECKLIST

Check with your mortgage lender or landlord that they don't object to you letting out a room.

Always tell your insurer. If you don't, and your lodger has an accident on your property, you could find yourself defending a costly lawsuit without any backup.

Get a written agreement, covering areas such as how much notice you are required to give if you find you need your room back.

If you are receiving benefits, tell the relevant authorities, because taking someone in may affect your claim.

If you have been claiming a reduced council tax bill for single occupancy you must let your local authority know about your new arrangement.

Get the lodger to set up a standing order for the rent. By taking the personal element out of collecting money you can help relationships run more smoothly.