If you decide to rent a room in your house or flat to earn some dosh, the taxman cannot touch the rent you receive up to £4,250 per year ie this is tax free income. He has called this “Rent a Room Scheme”. This scheme would apply if you rent a room in your furnished family home where you live. Your lodger can take up either a single room or an entire floor of your home. If you charge extra for meals and laundry, you would need to add this to the rent you receive. If the total amount of money you receive from your lodger exceeds £4,250 then you have two options:
- You pay tax on any income over £4,250 without deducting any expenses or
- Take the rent you receive and deduct your expenses to work out your profit. You then pay tax on this profit.
This scheme will not apply if you split your home into separate flats and you let out the separate flat(s). If you do this than you declare the rent you receive from this in the normal way.