Rent a Room Scheme

Date Published 01 September 2018

Q Pennies are short at present and I have a spare room, can I rent this out and do I have to pay any tax?

A: It is not uncommon today to find times when one may have a spare room and renting this out can be a good means of bringing in some extra income without some of the liabilities which comes with renting your whole property though for example an Assured Shorthold Tenancy Agreement (AST).

The process involves advertising your room though a paper advert, a Letting Agent or some internet providers. You will need to conduct your own viewings and having sourced a suitable lodger it is advisable to draw up some form of agreement / house rules. The scheme is not governed under the Housing Act 1985 so you have no fears of lodgers seeking to stay if things don't work out and you ask them to leave or rents are not paid. You can even go as far as placing their belongings in a black plastic bag outside the property though if things are not working out try to come to some mutual arrangements first. You do not need to take any deposit, though if you do this does not have to be registered unlike an AST.

The accommodation you provide much be furnished within your main home, though can be Monday to Friday if you prefer more privacy at the weekend as with any shared accommodation your lodger will need access to both your kitchen and bathroom, though not necessarily the whole house. If you try to create some privacy by installing a 2nd kitchen for the lodger's use then you will be liable for a 2nd Council Tax Banding.

You can earn up to £7500 per tax year tax free under the scheme with joint owners receiving half this figure each for the tax year 2018-19. This is equal to £625 per month. Typically with our area around £425 per month all-inclusive of utilities is the going rate. Though remember if you are currently claiming the 25% allowance off your Council Tax as a single occupier, you will lose this. However the extra income from the room makes up any loses. You can also claim for additional expenses including providing meals or laundry services. By using the scheme you will not be able to deduct any of your expenses. Though there are options to recover expenses if your income exceeds the £7500 figure or you decide to opt out of the scheme altogether.

You do not mention whether you are an owner occupier or tenant. Both can use the scheme however tenants would need to get consent from their Landlord. This is often already refused within the tenancy agreement as this typically contains a no subletting clause. Likewise, any lender and buildings insurance company needs to be informed and they may also need to give consent.