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Take in a lodger and earn £7,500 tax free

15 March 2016

Lodger Earn £7,500 Tax Free Live in LandlordHome owners can earn a hefty £7,500 a year tax-free from next month if they let a room out to a lodger.

Under the government’s Rent-A-Room scheme, taking in lodgers can earn live-in landlords £625 a month.

This compares well with average rents for rooms, which official figures put at an average £708 a month in London; £405 in Leeds and £432 in Glasgow.

Tenants as well as home owners can claim the tax break, providing the lets are short-term.

Many Airbnb landlords and property owners letting parts of their homes through similar web sites can offset their rents under the Rent-A-Room scheme.

The drawback is in return for paying no tax on rents, landlords cannot claim any business expenses, such as rent, mortgage interest, repairs or other day-to-day bills.

For homeowners, mortgage lenders will generally agree to lodgers but the scheme does not apply to buy to lets.

The other risk is insurance cover.

Standard home insurance will generally still offer cover at the same cost as long as the provider knows a lodger is in the house. However, the policy will not include loss or damage to the lodger’s belongings.

It’s a good idea to have a basic tenancy agreement in place so the landlord and lodge both know the house rules.

Also look at council tax. If you are single, you may lose any discount unless the lodger only stays Monday to Friday or is a student.

Finding a tenant should not be too hard.

Look at web sites like SpareRoom.com; EasyRoommate and Gumtree.

Landlords do not have to claim the relief on a tax return, but should keep records to show how much rent is received.

Find out more about the Rent-A-Room scheme