Do you seek easy ways to make money? How about letting a room in your own house? An easy way to make extra money that is tax-free as well. Now you must be wondering how the rent a room scheme might work? You are just on the right page to learn more about this easy scheme.
Before we delve into further details, see the following listed points of discussion in today’s article:
- What is Rent a Room Scheme and How Does it Work?
- How much can I Earn?
- How to Make a Claim for Rent a room Scheme Income?
- The Bottom Line
What is Rent a Room Scheme and How Does it Work?
When you rent out a room in your home to a particular tenant and the income that you are making will be tax-free. This process is known to be a rent-a-room scheme. Which is popular for making tax-free extra money. However, the limit of this money should not exceed the given limit within a tax year.
This scheme allows you to earn up to £7,500 within a tax year. This is received from a lodger and you can only when you meet the required criteria. This included the following terms:
- It has to be fully furnished accommodation which is in your main home.
- The space must not cover any office or other business use.
- It is not a must to own the property in order to qualify.
- However, if the property is on rent, the permission of the landlord must be taken before you decide to sub-let.
- The permission of the mortgage provider must be taken in case of let your own home.
- Permission from a home insurance provider is necessary as well.
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How much can I Earn?
In case you let your own home, the limit to earn within a tax year is £7,500. However, if you are sharing the property, then the claim that you can make is £3,750 for each one of you. This income ensures to cover all the expenses that you have charged your private tenant. In case you charge your tenants for the laundry, meals or cleaning. These expenses can be added as well.
Furthermore, you will not deduct any such expenses from the income you are getting.
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How to Make a Claim for Rent a room Scheme Income?
If you find out that the lodger is giving you an amount that does not exceed £7,500 within a tax year, this means your income is tax-free and you don’t have to make any tax payments other than maintaining a record of your income.
If you wish to opt-out of this rule and see it suitable to have rental income dealt with under the regular rules, you are allowed to do so. You have to pay the tax that is on the amount you get after getting the difference between your rental expenses and rental income. This is a good option to handle the loss of the property.
In this case, when you wish to opt-out and go on normal rules to follow, you are required to inform HMRC till 31st January after the tax year ends.
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The Bottom Line:
Now that you know what is the rent a room scheme and how does it work, we can sum up the discussion by saying that it is indeed an easy way to make extra money and enjoy this extra amount for being tax-free as well. However, there are certain perks that might attract you to go back to normal rules. One such attraction is the compensation of your property damage in unfavourable circumstances that is only possible if you are paying the tax.
We hope this article helped to develop a better understanding.
Disclaimer: This article is written to provide general information based on what is the rent-a-room scheme.