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How you can earn £7,500 a year tax-free

How you can earn £7,500 a year tax-free
28 March 2019

By UKinsuranceNET In Insurance Advice

Do you have spare rooms in your home that could be let to one or more lodgers? If so, any income you earn up to a maximum of £7,500* a year is completely tax-free.

Rent a Room scheme

Aptly named the Rent a Room scheme, the Government encourages homeowners to free up unused living space and bedrooms by providing tax relief up to £7,500 a year on any income earned from doing so.

There is no limit on the number of rooms you can let, but they must be in the home that you also occupy – you cannot use the scheme if the house is already converted into self-contained flats, for example.

The £7,500 tax allowance is automatic provided you are earning less than this amount. If your rental income exceeds that ceiling, you need to complete a tax return declaring the full amount of income received and the allowance of £7,500 is credited against your tax liability.

You are the landlord

It is worth emphasising that by participating in the Rent a Room scheme you automatically become a landlord – with all of the risks and responsibilities that entails:

Landlord liability insurance

  • as the landlord, you have a duty of care for your tenants, and if they suffer an injury or have their property damaged and hold you liable, you may be sued for a significant sum of money;
  • the landlord liability insurance typically incorporated into your landlord insurance policy is designed to provide indemnity against such claims of at least £1 million (at UKinsuranceNET, our landlord insurance policies can offer up to £5 million cover if required);

Theft or accidental damage

  • you may also protect your own possessions and the contents of your home against theft potentially carried out by your tenant or one of their visitors;
  • specialist lodgers house insurance typically covers the special circumstances and risks which may arise when you have a lodger on the premises – such as cover for items stolen by the lodger, rather than through burglary, for example;
  • in addition to protection against theft, you may also want to insure the contents you own against loss or damage – and consider the option of accidental damage cover;

Building insurance

  • if you are the homeowner, of course, you also need to satisfy yourself that the landlords or lodgers house insurance you arrange continues to provide protection for the structure and fabric of the building – something which your mortgage lender is also likely to insist upon;

The number of lodgers

  • lodgers house insurance arranged by us here at UKinsuranceNET provides cover for up to a maximum of five lodgers in your home.

The Government’s Rent a Room scheme provides a simple and easy way of earning a tax-free income of up to £7,500 a year – but remember that you become a landlord as soon as you let any spare room in your home in this way and that suitable landlord insurance or lodgers house insurance is then a prudent precaution.

* Correct as at March 2019

Further reading: Know how – taking on a lodger

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