An increasing number of the over 60s are picking up extra income by renting out a room in their house. This can make a lot of sense if, for example, children have left home (although they do seem to return!) yet you do not want to down-size or move. We have previously looked at ways of raising money on one’s home, by various mortgage schemes and equity release, but renting out a room may be less onerous. This scheme allows one to earn a tax-free income, even if you yourself are renting your home.
If you do rent out a room in your home, you can get up to £4,250 tax free income. A government scheme called Rent A Room was specifically designed to encourage people to take in lodgers. The basic rules are:
· You let out a room or part of your main property (it can be more than one room but not a self-contained flat).
· It must be furnished, an unfurnished room or rooms don’t qualify.
· You don’t have to own your home, if you have your landlord’s consent you can take advantage of the scheme as a tenant.
· If you don’t normally fill out a tax return and the income from letting is below £4,250 (around £350 a month) you don’t even have to do anything, the tax exemption is automatic.
· If the amount you earn from the let is above £4,250, just let your tax office know.
If you usually fill out a tax return then the scheme may not benefit you. You cannot offset any of the expenses of renting the room against the income, so wear and tear, insurance costs, any furnishing or decoration cannot be deducted from the income.
There are several websites which specifically deal with finding rooms and tenants under this scheme, or of course you could try the local paper or a more general community website.