Page 5: Taking on a Lodger.

The government has publicised its Rent a Room scheme offering up to £4250 tax free on letting a room to an individual in your, furnished, family home. The extra money may cover the cost of your mortgage payments and as its tax-free it will be more valuable and you won't need to fill out a tax return specifically for the lodging. Lodging might be more suitable to you than letting the whole house, allowing you to remain on the property and to have more legal rights but maybe letting more than just a room is more suitable for you. It would certainly be more lucrative and it doesn't have to be for years. You can set the term of the rental, and other rules, in the form of a contract. You may even be able to let a room during the working week only. The best way forward is to consult other people who have let rooms or houses or local letting agents or our contacts page.

If you own your own home or if you're a tenant for that matter, you are permitted to let furnished rooms in your home and receive income which will not be taxed. In the 1996/7 tax year, up to £3250 rental income per annum could be taken tax-free, or £1625 per person if the room is let jointly by a married couple. For the 1997/8 Tax Year, the allowance was increased to £4,250. Rent includes payments for meals, cleaning and laundry as well as the accommodation itself. Amounts you charge to cover council tax, telephone and heat & light are not necessarily allowable for tax relief. To qualify under the scheme, you must live in the property with the tenant for at least part of the time, and it must be your principle place of residence - in other words your main home. If the gross rent received is greater than the annual allowance, you can choose to pay tax either on the excess or on the gross rent less expenses such as management costs and maintenance (but not home improvements). Where the gross rent is not much over the allowance, the first option is usually cheaper.

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