IF you’re lucky enough to own your own home and have a spare bedroom, you could rent it out and make thousands of pounds.
House prices have rocketed over the past year as Brits have rushed to bag a home of their own during the Covid crisis.
1
According to GetAgent, house prices have risen by as much as £100,000 in just 12 months in some areas.
It’s meant that many will be putting their house hunting on hold until the market cools – and looking to rent instead.
Here’s how much you could make by renting out your spare bedroom – and everything you need to know before getting a lodger in.
How much could I make renting my spare room?
How much you could get from renting your spare room will vary depending on where you live and what the room is like.
You could make the most if you live in London at £708 per room, while the cheapest rates are in Northern Ireland and the North East at £369 and £392 respectively.
According to Santander, the average monthly mortgage repayment for a first time buyer is £723 – which means renting out your room could help pay a sizeable chunk towards, or even cover, this cost.
How do I rent out my spare room?
You can use the government’s Rent a Room scheme to get a lodger in and make some extra cash.
The scheme allows you to earn up to £7,500 per year – which is roughly £625 a month – tax-free letting out your room.
However, you have to furnish it yourself, so make sure you factor this cost into your calculations.
As the average UK rent bill per month is £576 for a room, that totals £6,912 per year – which you can pocket without being slapped with a tax bill.
But if you’re sharing the income with your partner or someone else, the threshold is halved from £7,500 to £3,750 per person.
If your earnings are below £7,500, there’s no need to let HMRC know you’re renting your spare bedroom out, according to accounting firm Kreston Reeves tax partner Clive Relf.
“However, if you exceed that £7,500 limit you will need to declare this income via a tax return,” he adds.
What happens if I make more than £7,500?
If you exceed the threshold for the Rent a Room scheme, you’ll need to let HMRC know by filling in a Self Assessment tax return.
Be aware that expenses like furnishing, repairing damage and insurance are not taken into account – so you can’t claim money back on this.
If you’ve never filled out a tax return before, you’ll have to register for one on the – you need to do this by October 5 this year otherwise you may be have to pay a penalty charge.
To register for self-assessment, visit the GOV.UK website and complete the identification process.
Here’s a step-by-step guide to filling your tax return out.
What else do I need to know?
Make sure you let your mortgage provider, local council and insurer know you’re renting out your spare room, chartered surveyor and director of property buying service GoodMove Ross Counsell said.
“Renting out a room could be in breach of your mortgage terms, and you’ll also need to tell your insurer as a new tenant could affect your cover,” he said.
Your council tax bill could also be affected by having an extra lodger on board if you’re single.
This is because you can get a single person discount on your bill worth 25% – which you’ll lose if another person is living there.
Keep in mind that your tenants have certain rights.
For example, you need to give your tenant proper notice of eviction – usually around a month – and by law your tenant must have access to a bathroom, kitchen and bedroom.
“You should draft a standard tenancy agreement with these terms, as well as when rent is due, the fee, length of contract, if bills are included and a room inventory and have this signed by both you and the tenant,” Ross adds.
Here’s how to get help paying your rent if you’re struggling on Universal Credit.
We also explain how to save thousands as mortgage rates hit a record low.
We explain how to find the best mortgage for you, including lenders offering “no deposit” loans.
Mum shares savvy hack to saving time when moving house
