Families are struggling to bridge the gap between income and expenditure in order to cover household bills. The rent-a-room scheme allows you to earn extra cash each month. This additional tax-free income helps greatly in terms of covering monthly mortgage repayments, especially if you've already used up your personal tax allowance.
How to Earn Extra Cash by Renting Out a Room
The growing UK population issue has been partially addressed by giving homeowners the chance to earn extra cash from their property. The rent-a-room scheme encourages people to take in a lodger. It allows a homeowner or agreeable landlord to make a tax-free income of £4,250 per annum. Any figure in excess of £4,250 is taxable.
Criteria for the Rent-a-Room Scheme
- Primary residence. The rent-a-room scheme only applies to the primary residence. It should be noted that the primary residence cannot be a self-contained flat.
- Fully furnished room. Unfurnished rooms don't meet the eligibility criteria for the rent-a-room scheme. This may mean that those seeking to rent-a-room incur a few initial expenses.
With a landlord's consent, it is possible to rent to a lodger at a let house. This is an excellent way of reducing monthly rent payments should the landlord be agreeable. In practical terms, most rent-a-room schemes are offered by homeowners.
Negatives of the Rent-a-Room Scheme
- Tax forms. Homeowners that are earning extra money up and above that specified by the scheme will need to complete tax forms if they have already utilised their personal tax allowance.
- Furnished rooms. A room doesn't qualify unless it has been fully furnished. In order to bring the room up to standard, it may require a fresh cash injection.
- References. Although the provision of two references is standard practice, this doesn't guarantee that the lodger is law-abiding or even pleasant.
- Damage. A months advance rent will cover some damages, but might not cover everything.
Personal Tax Allowances when Renting a Room
Those making an income from this scheme will normally need to declare this to the Inland Revenue. The personal tax allowance for 2010-2011 is £6,475. Should a homeowner's cumulative income fall below their allotted allowance, there is no need to complete any tax forms at the end of the financial year.
Homeowners seeking to earn extra cash to help with household bills should seriously consider the rent-a-room scheme. In the current low interest climate, it is possible that this tax-free income could actually cover any mortgage repayments in-full.
Sources
"The rent a room scheme." Directgov.
"Rates and allowances - income tax." HM Revenues & Customs.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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