A free information service from spareroom.co.uk

Tax and your lodger

Renting a room out can be a useful source of income but it's important to know the financial implications before you enter into anything. As with any source of income, tax can affect the final amount you make so it's a good idea to read up on the tax rules in advance. The good news is that the government have introduced a scheme to help live in landlords. This is known as....

The Rent a Room scheme

Under the scheme you can earn up to £4,250 per year by renting out a spare room without paying tax. This is how the scheme works:

You let out a room or part of your main property (it can be a whole floor but not a self-contained flat).

It must be furnished, unfurnished rooms don't qualify.

You don't have to be a homeowner, if you have your landlord's consent you can take advantage of the scheme as a tenant.

If you don't normally fill out a tax return and the income is below £4,250 (around £350 a month) you don't even have to do anything, the exemption is automatic. If the amount you earn is above just let the tax office know.

If you usually fill out a tax return you should consider whether you're better off in the scheme or not. Under the scheme you can't claim expenses for wear and tear, insurance and so on so you may be better paying tax under the rules for residential lettings. This will enable you to offset certain expenses incurred against income. If you usually fill out a tax return and have an accountant you should check with them to see whether you'd be better off under the scheme or not.

If you charge your lodger extra for meals or laundry services this all counts towards your £4,250 so bear this in mind. In addition, if you take in a lodger and co-own your property (with your partner for example) then the allowance is split between the two of you - you can't earn £4,250 each without paying tax. For full details on the scheme see Direct.gov.uk