The good news is that there are plenty of people looking for a room to rent. Provided you can set rules that both parties are happy with, you can enjoy a good relationship with the tenant whilst making money and earning some extra cash.
Many people have an extra room in their home that is either unused or perhaps full of items you can’t decide if you want to keep or not. However, this spare bedroom is a great way to earn a little extra cash by letting the room to a lodger.
In this article, you can learn more about renting an unused room and some tips to help navigate the process.
Is Renting A Spare Room Popular?
the Office of National Statistics (ONS), there are an estimated 18.6 million unused rooms in the UK. The number of people renting a room is steadily rising. This year could see figures rise further as people look to secure additional income if they are not able to work due to the pandemic. The Rent a Room scheme work by allowing homeowners to earn up to a certain threshold tax-free, providing financial benefits and making it easier for individuals to rent out a room in their home.
Preparing Your Spare Room
Before renting out your spare room, it’s essential to prepare it for potential tenants. Here are some tips to help you get started:
- Clean and Declutter: Make sure the room is clean, tidy, and free of clutter. A spotless and organized space will give a good impression to potential tenants and make the room more attractive.
- Furnish the Room: Provide basic furniture such as a bed, wardrobe, and desk. Consider adding a TV, fridge, and microwave to make the room more comfortable and convenient for the tenant.
- Decorate the Room: Add some color and personality with decorations, curtains, and rugs. This will make the room feel more welcoming and homely, increasing its appeal.
- Check the Room’s Condition: Ensure the room is in good condition, with no signs of damp, mold, or structural damage. You may need to carry out some repairs or maintenance work before renting out the room.
- Consider Adding Amenities: Think about adding amenities such as Wi-Fi, laundry facilities, or even a small gym to make the room more attractive to potential tenants.
By taking these steps, you can transform your spare room into a desirable living space that tenants will be eager to rent.
Weekly Renting
If you live in a city such as London, you may offer the option of only renting from Monday to Friday. There are many people that may need to stay in London for work during the week, then return home for the weekend. This is a better arrangement for some people as you get the benefit of earning rent and knowing each weekend you can have the house to yourself.
Alternatively, you could consider converting your spare room into an office space for remote workers, which is in high demand due to changes in work patterns.
What Should The Lodger Get?
The person renting the room should only have to pay one amount, the rent. Included in that should be all bills such as water, electric, gas, and council tax. As part of the agreement, you may also include internet, cable TV, or other services. All of this should be discussed and agreed before you rent the room.
For those interested in becoming host families, providing accommodations for foreign exchange students or language learners can be both a source of income and a meaningful cultural exchange.
It is also important to have a written agreement with the lodger. This will not only confirm their responsibilities but yours also. The agreement should cover the lodger’s rights while in the house such as access to common areas like the sitting room or kitchen. For example, confirming times they may not be permitted to use the sitting room.
Things To Consider in the Room Scheme
There are a few things to consider before you rent a room as they may impact your household finances, including paying tax.
If you decide to opt out of the Rent a Room Scheme, you may need to treat your rental activities as a rental business, allowing you to deduct allowable expenses and capital allowances.
Tax. You can earn up to £7,500 from renting out a room before you must pay tax, thanks to the room allowance provided by the Rent a Room Scheme. Remember to declare everything correctly to avoid penalties from the taxman. Council tax. If you are currently receiving a council tax discount for being a single resident, you will lose this if you get a lodger. Insurance. Some home insurance policies don’t permit lodgers. Check with your insurer first as you may need to switch insurer or pay more on your existing policy. Legal extras. Renting a room means there are certain regulations you must follow. This includes having all electrical appliances checked, making sure the home complies with fire regulations and ensuring the boiler is serviced once a year by a CORGI registered engineer.
Understanding the Room Scheme
The Room Scheme is a government initiative that allows homeowners to rent out a spare room in their property and earn up to £7,500 per year tax-free. Here are some key things to understand about the scheme:
- Eligibility: To be eligible for the scheme, you must be a homeowner who rents out a spare room in your main residence. You must also be a UK resident and have a valid National Insurance number.
- Tax-Free Allowance: The scheme allows you to earn up to £7,500 per year tax-free. This means that you won’t have to pay income tax on the rent you receive from your tenant.
- Rental Income: The scheme only applies to rental income from a spare room in your main residence. It doesn’t apply to rental income from other properties or sources.
- Expenses: You can claim expenses related to the rental income, such as mortgage interest, council tax, and utility bills. However, you can’t claim expenses related to the room itself, such as furniture or decorations.
Understanding how the Room Scheme works can help you maximize your earnings while staying compliant with tax regulations.
How Much Extra Cash Could You Earn?
Rent varies wildly depending on where the property is. Compared to traditional rental properties, renting out a spare room can be a more flexible and less demanding option for homeowners. In London, the average rent for a room is £745, in the rest of the UK, the average is £535. Over a year you could earn £8940 in London or £6420 outside of London. Remember, this is an average so your exact location could mean that you earn more or less than these figures.
Source: [https://www.propertywire.com/news/uk/cost-of-renting-a-room-in-uk-up-by-11-year-on-year-latest-](LINK 1) index-shows/
Tax and Finances
As a homeowner renting out a spare room, you’ll need to understand your tax and financial obligations. Here are some key things to consider:
- Income Tax: If you earn more than £7,500 per year from renting out your spare room, you’ll need to pay income tax on the excess amount. You’ll need to complete a tax return and pay tax on the profit you make from renting out the room.
- Capital Gains Tax: If you sell your property, you may be liable for Capital Gains Tax on the profit you make. However, if you’ve rented out a spare room, you may be able to claim relief on the tax you pay.
- Mortgage Interest: If you have a mortgage on your property, you can claim mortgage interest as an expense against your rental income. However, you’ll need to keep records of your mortgage payments and interest rates.
- Council Tax: You’ll need to pay council tax on your property, even if you’re renting out a spare room. However, you may be able to claim a discount on your council tax bill if you’re renting out a room to a student or a low-income tenant.
By understanding these financial aspects, you can ensure that you meet your obligations and make the most of your rental income.
Next Steps in the Room Scheme
Now that you know the basics of renting out a room, you just need to advertise and start earning extra cash today!
