Letting a room in your House
Money coming in is better than money going out. That’s why I’d rather be a landlord than a tenant. However, the problems for landlords can be numerous and painful. You have all sorts of legal obligations. You’ll have to deal with tenants that either pay late or find themselves unable to pay at all. Disputes may have to be settled and the property will likely sustain damage. You either have to be constantly fixing problems or have a letting agent do that for you. If you use a letting agent, they will of course eat into your profits. A lot of people would suggest that being a landlord is too much work for too little reward, and in general, I’m inclined to agree. So what can you do if you’re looking to make some extra cash without being bogged down with all the nonsense of buying to let?
Let out a room in your own home!
It’s easy, it’s profitable and it’s tax-free in the UK under the Rent a Room scheme. If you’re letting a furnished room in your own home, you can make £4,250 a year without paying any income tax. For those of you who hate paperwork, you’re in luck. There are no forms to fill in. You simply let the room and start raking in the tax-free cash. That being said, lodgers have different (pronounced ‘less’) rights than tenants so it’s a smart idea to put an agreement in place. An appropriate document can be downloaded at LimeCastle.
The proof is in the profit
My girlfriend and I do not currently have plans to start a family and, given the size of our home, we decided that it was a good idea to take in a lodger, specifically a close friend of ours. This was almost two years ago, and in that time I’ve made a tidy £7,000 for the privilege of living with a close friend. My lodger gets the benefits of cheap accommodation while being in an environment that I think we all enjoy. We love having you here, unnamed lodger!
So, what’s the catch?
Well, generally it’s quite a sweet deal. There are a few things to keep in mind and this scheme isn’t open to everyone. You either need to own the property or have permission to take on a lodger if you’re renting the property from someone else. If you have a mortgage, the mortgage company should be informed of your plans to take on a lodger. Obviously, you’d be giving up a chunk of your space, privacy and possibly even security. Your energy bills will increase and your home insurance premium will go up too. If you were living on your own before, you will lose you council tax discount. However for me, the advantages far outweigh the disadvantages. As a young person doing everything I can to set up a decent financial future for myself, taking advantage of the Rent a Room scheme is one of the best decisions I’ve ever made.
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Skint in the CitySeptember 20, 2011 at 12:25 pm
Food for thought there . . .
I would let out a room to a friend but not to a stranger – too worried about security I guess.
This summer I was thinking of home-swapping for a free holiday and again it came down to whether I was prepared to take the chance with strangers in my home.
Love the idea of letting a room in principle but may be just too cautious to do it with a stranger . . .
AshSeptember 22, 2011 at 10:24 pmAuthor
Exactly! I don’t think I’d ever let the room to someone I didn’t know. There are just too many unknowns. Letting is obviously a financial decision but when it comes to your home, it becomes very personal. I wouldn’t want anyone I didn’t know living with me, well not when I own the place anyway. That said, I do think it’s a great way to make a little extra cash while helping out someone you know.
Karen BryanOctober 2, 2011 at 9:13 pm
The Rent a Room scheme is a good way to make some tax free income. However my husband and I prefer to have the house to ourselves but if we really needed the cash we’d consider it.
AshOctober 2, 2011 at 9:51 pmAuthor
That’s a good point Karen. It depends upon how much you value your privacy and also upon your relationship with the lodger. I don’t need the cash…I just have a problem in that I’m addicted to acquiring more of it!
Darwin's MoneyOctober 7, 2011 at 9:10 pm
I rented a room to a co-worker when I bought my first home. We were both young, girlfriends lived in other states and we were on different shifts. We barely saw each other! It made complete sense. There were minor annoyances like he was messy, a real loud chewer (obnoxiously loud) and he liked to host parties at my house without necessarily getting “permission”, but it made me a few thousand dollars over the course of a year.
minerva @ real estate park city utahOctober 8, 2011 at 1:34 pm
I think letting out a room in your own home is much better when you let a friend rent it than inviting anyone else whom you do not really know that well. Letting out a room is very good idea but yes, there are still consequences and sacrifices which a landlord must do.
Maggie@SquarePenniesOctober 9, 2011 at 3:53 am
This is a great idea for a friend or couple that you are comfortable having around. Here in the US I know of 3 separate couples who did this. In most cases it only lasted about a year until the second couple could afford their own place. Another person rented out a spare bedroom just for storage.
Carrie - Careful CentsOctober 18, 2011 at 3:28 am
In theory I would love to rent a room or even buy a rental property but I’m too busy to deal with any renter mishaps and payment problems. Plus I like my solitude and don’t cope well with roommates lol. You have brought up some good points and great tips.
Live Below Your Means | Help Me To SaveOctober 25, 2011 at 1:09 pm
[...] tips and stick to how not to spend money. If you have a spare room you can let it out under the Rent a Room scheme and earn up to £4250 tax free per year. You should aim to pay off debt, to avoid interest stacking [...]
StanNovember 2, 2011 at 6:41 pm
Renting out a room is a very sensible idea, especially if you live in an area that is likely to attract decent tenants. BTW, as I was reading the article I remembered Joey from Friends: “Wanted – a female tenant, non-smoker, non-ugly”
Antonia ShellyDecember 10, 2011 at 10:18 pm
My name is Antonia and I have been making use of my spare room for a number of years. I have quite recently turned to taking in foreign students (as a host family) in my home in London.
My students are sent to me by an agency I use http://www.hfslondon.com who work for educational institutions in London. It has been a rewarding experience all round. Although I don’t earn as much as when I used to take in lodgers, I feel more comfortable knowing that my foreign students are vetted by the language schools and my agency and I don’t have to worry as a single lady as much about who I am sharing my home with.
I have met some lovely students (all over 18 years old thankfully). I would suggest you look into it more before taking the plunge but Homestay has been a positive experience for me for over 2 years now.
Income Report – August 2012September 3, 2012 at 9:48 am
[...] Property - £316 tax free. Under the Rent a Room Scheme [...]
Income Report – October 2012November 2, 2012 at 3:52 am
[...] Property - £316 tax free. Under the Rent a Room Scheme [...]