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As the cost of living crisis bites, more and more people are looking for ways to supplement their income to cope with the rising energy costs, food and other bills.
And one way to make sure the money comes in is – if you have the space – to consider rent a spare room to a tenant.
It is a mutually beneficial arrangement, which can not only increase your income, but also provide accommodation – at a potentially reasonable rate – to someone in need.
The good news is that these days it’s easy to rent out part of your home thanks to the Government Rent A Room Scheme, with extra benefits for any homeowner who wants to make some extra money, thanks to tax breaks.
Under the Scheme Any money you earn from your tenant(s) up to £7,500 a year is tax free. However, if you earn more from the scheme, you must pay tax on the excess.
But while that may make it an attractive prospect, there’s more to consider if you have a spare room and are considering renting it out.
How do you handle it? Read on to find out everything you need to know…
Things to consider when renting out a guest room
You should consider the following factors.
Contact your lender
Make sure that your mortgage company allows you to take in a tenant and always inform your home contents insurance about your new living situation.
Consider your tenant’s lifestyle
If they will be home a lot, and especially if they work from home, you need to think about heating costs. With energy bills rising, you need to weigh your rent against the very likely increase in your energy bill due to having an extra person in your home.
Put safety first
Ask your tenant to request a DBS certificate before they move in so you can check for criminal convictions or warnings. It’s also worth doing a credit check to make sure they can afford the rent.
Set ground rules
Most online rental sites, such as guestroom.comhave model contracts that you can download for a fee, or instruct a local law firm to prepare a legal document for both you and your tenant to sign.
The Citizens Advice Bureau also states that you should check each tenant’s immigration status and that he or she is entitled to rent in the UK.
Do you need permission to rent out your spare room?
According to the Citizens Advice Bureau, there are other factors to consider when taking on a boarder.
For example, if you are a homeowner, you may need to get permission from your mortgage lender before renting out any portion of your home. If you are a leaseholder or live in shared ownership, you may need to get your landlord’s permission.
If you rent a property yourself, you should also check whether you have the legal right to take in a tenant. You can find more information here.
Check that you are paying the correct amount of council tax. If you lived alone before you decided to take in a sexton, you are no longer eligible for the single person’s tax credit.
You should talk to the Citizens Advice Bureau about any other benefits you claim that may be affected by taking on a boarder.
How to get the tax exemption for renting a room
To qualify for the tax exemption, the room must be located in your primary residence and furnished, and any furnishings must comply with fire safety regulations. You should also be aware of your annual Gas Safe recorded checks for all gas appliances.
Visit citizenadvice.org.uk for more details.
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