10 Oct Tax Benefits of Renting Rooms in Your Home
In the face of looming expiration of many cheap fixed-rate mortgage arrangements, an increasing number of individuals find themselves grappling with the challenge of managing mortgage payments. The situation is expected to become even more daunting as these favorable deals come to an end. However, there is a solution that can provide some much-needed financial relief: renting a room to a lodger.
Renting a room to a lodger
Renting a room to a lodger will allow you to earn up to £7,500 a year tax free which will certainly help with mortgage payments, providing the following criteria is met:
- Your house must be fully furnished and your lodger has access to other parts but exclusive use of their room. Rooms let unfurnished do not qualify. You must still live at the property.
- You need to get permission from your lender to allow a lodger – most will grant this – possibly with a consent to mortgage form being completed for each one.
- Your home insurance provider also needs to know to amend the policy; otherwise, they’ll null and void it on a claim.
You need a tenancy agreement of some sort. Websites such as spareroom.com provide excellent templates. You don’t need a lawyer, as lodgers come and go.
Where at least one other person receives income from letting a room in the same property, the tax-free limit is halved to £3,750. The limit of £3,750 per person applies where two or more people receive letting income in relation to a property, meaning that it is possible to receive tax-free income in respect of a single property in excess of £7,500 a year.
Based in the Heart of Evesham, The Accountancy Office are here to help with all of your accountancy needs.
If you wish to discuss any aspect covered in this article please don’t hesitate to call 01386 764741 or email us here.