Spread the love

Earn up to £4,250 Tax FREE!

Overview

If you’ve got one or more spare rooms in your home, 2011 could be the perfect time to rent them out and rake in some tax-free cash.

Letting agents are reporting a mini-boom in the rental market, particularly in London where rising demand, plus a shortage of supply, means that rents are going up and landlords can now demand an average of £600 a month for a room in the capital.

Meanwhile, under the government’s rent-a-room scheme, you can receive rent of up to £4,250 a year per household completely free of tax if you let one or more furnished rooms in your home.

To qualify, you must live in the property with the tenant for at least part of the time, and it must be your “principal place of residence” – tax man’s jargon for your main home.

The £4,250 can be on a room-only basis, or it can include payments for meals, cleaning and laundry, and a lodger can occupy a single room or an entire floor of your home. But the tax-free scheme does not apply if your home is converted into separate flats that you rent out, nor if you let unfurnished rooms.

Taking in lodgers doesn’t mean having to share your home the whole time. The latest trend is to rent out a room from Monday to Friday only, giving you a reasonable tax-free income but allowing you to retain your privacy – and your spare room – at weekends. “Fractional letting”, as it is known, is popular in cities with long-distance commuters who want to live near work during the week but return home at weekends.

The rent-a-room scheme applies to ordinary lettings of living accommodation in the taxpayer’s own home. It does not apply to rooms let as an office or for other business purposes, see PIM4002. But the scheme applies to genuine lodgers who study at home or who do some of their business work at home in the evenings or at weekends.