With the economy stretched as it is, many of us are looking for additional sources of income. Normally called a side-hustle, there is one financially sound decision you can make, and that's the Rent-A-Room Scheme ...
If you own the property and live in it, then renting a room is a great way to create extra income. However, if you are a tenant, lease the property, or have a mortgage on it then you must ensure that all parties are ok with the idea!
Next up is your own income. If your income from renting the room is less than £7,500 per year, it's tax-free as long as the room is furnished. If your income is more than that then you should declare it on your self-assessment tax return.
You can opt in and out of the Rent-A-Room Scheme each year, depending on your income. By opting in, you get tax-free rental income up to £7,500 per year, by opting-out you pay tax on it.
You can calculate this by deducting the cost of any maintenance, insurances and broker fees from the gross rental income each year. However, do keep a record of your income and expenses in relation to the room you are renting. If you're running a rental business, you'll probably want to opt-out.
When it comes to completing your self-assessment tax return, declare all the income and expenditure on the property pages. It would be a great idea to speak to a tax advisor like me at this point.
The Rent-A-Room Scheme is applicable to short-term rentals as well as something longer, so AirBNB's and Bed & Breakfasts also qualify though do be careful of using the £1,000 property allowance.
Remember to furnish the room to qualify for the Rent-A-Room Scheme, and it also has to be part of your own home and not included in any commercial office or business premises.
If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.