Call our friendly team

01702 606 301

Renting out rooms in your home

If you have a spare room or two in your home, renting out the space could earn you a tidy sum. You would also receive a welcome pat on the back from the government for doing your bit in helping to ease the current shortage of affordable rented accommodation.

An expression of that official gratitude comes by way of an income tax allowance on your earnings from letting out a spare room. You automatically qualify for a tax-free allowance of ÂŁ7,500 a year (information correct as at October 2021).

You don’t have to do anything more to qualify for the allowance under this so-called Rent a Room scheme, provided you remain the “resident landlord” (continue to live in the home where the spare room is let out), whether you are the owner-occupier or a tenant of the property.

If you decide to earn some extra cash in this way, want to let out a room or rooms in your home, and take advantage of the tax-free allowance, you might also need to give serious thought to some of the following additional implications:

  • if the rental income you receive is more than ÂŁ7,500 during the course of any year, you may be required to pay income tax on any income in excess of that amount – but qualifying expenses and capital allowances associated with your letting the room may be deducted from your income prior to calculating the tax due;
  • if you have a mortgage, remember that the agreement may contain provisions preventing you from using your property to generate an income (in other words, using it as a business) – and you will, therefore, need to inform your lender of any changes to your living arrangements that may affect this agreement;
  • if you are a tenant of the property, you will almost certainly need the express permission of your landlord before letting any spare room or rooms to tenants;
  • before your tenants move in, you should agree with them the tenancy conditions – for example, how much rent is to be paid, when, whether or not you require a deposit, and how long the rental will be;
  • you may wish to bear in mind that the deposit amount is not part of your income and when your tenant moves out you will have to repay it minus any deductions for breakages – in the meantime, the law requires that any such deposits from tenants are suitably held by an approved third party;
  • if you are renting out a room in your property and also making electricity, gas, and water available to your tenants from your main house supply, then you can pass on the appropriate charges to your tenants for their usage of these utilities – bear in mind that whether you install prepaid meters or work on an estimated usage for your tenants, you can only charge what you yourself paid for the utility and if you overcharge then you may be required to repay any such sum;
  • any home buildings and contents insurance that you have – whether an owner-occupier or tenant – may cease to be valid the moment you become a landlord. You may need to take specialist property insurance which is specifically designed to cover potential risks involved with having tenants in your property, concerning risks arising from your third party or public liability as the landlord. Speak to your insurance provider for clarification.

Although renting out a spare room or rooms in your home may be an attractive prospect for earning some extra cash, remember that there are other important implications also to consider.

This entry was posted in Landlord Advice. Bookmark the permalink.