Who couldn't do with a bit of extra income to help with the mortgage and household bills?
Why not join the growing number of people renting out their spare rooms though the Government’s Rent a Room scheme? If you already have a lodger or are thinking about letting furnished rooms in your home, you can receive up to £4,250 a year tax-free (£2,125 each if letting jointly – say as a couple).
However, if you do let out part of your home, it is important to understand your obligations.
The Rent a Room scheme
The scheme lets you receive a certain amount of tax-free 'gross' income (receipts before expenses) from renting furnished accommodation in your only or main home.
- A lodger can occupy a single room or an entire floor of your home. However, the scheme does not apply if your home is converted into separate flats that you rent out.
- If you share a home and both let a room or rooms
- f you are both letting furnished accommodation in your joint home, you will each be entitled to receive half of the allowance (up to £2,125 for the 2008-2009 tax year) without paying tax.
- If you provide meals and laundry services
- If you charge for additional services, you will need to add the payments you receive to the rent, to work out the total receipts. If you get more than £4,250 a year in total, you will have to pay tax, even if the rent is less than that.
There are advantages and disadvantages of the scheme - it's simply a matter of working out what is best for you. The principal point to bear in mind is that if you are in the Rent a Room scheme you can't claim any expenses relating to the letting (for example, wear and tear, insurance, repairs, heating and lighting). Click here to find out more.
TOP TIPS FOR LANDLORDS
1. Research, research, research
Thoroughly research the rental market in your area to make sure you are charging the right level of rent and not pricing yourself out of the market. Even during periods of high demand, it’s always better to charge slightly below market rent. It is also important to market your property effectively and remember that different tenants are looking for different things in a rental property. Students will be looking for different things to young families.
2. Make your mortgage work for you
If you are struggling with mortgage repayments, or your circumstances change, talk to your lender and try to arrange a new repayment plan. If you are coming to the end of a deal, search the market for a mortgage which best suits your needs.
3. Avoid the void
It is amazing how many landlords experience rental voids because of a lack of forward planning. Marketing your property before the current tenants leave increases your chances of keeping the property fully tenanted. A sure fire way of having no gaps is trying to keep good tenants for as long as possible.
4. Pick your tenants with care
Carrying out proper checks on prospective tenants should be par for the course for every landlord. Don’t hand over the keys before carrying out credit checks, bankruptcy searches and previous residency information.
5. Together you’re better
Landlords and tenants both benefit from having a good relationship. Courtesy, reliability and availability will make for a happier tenancy all round. What starts off as a small problem can turn into something costly if it’s left to fester so good communication is critical. More top tips for landlords.
Source: National Landlord’s Association advice to landlords on surviving the economic downturn.
A Government guide for landlords: Letting Rooms in Your Home
