People are always interested towards the idea that are useful for making a few extra pounds. Are you also the one who is seeking such profitable ideas these days? You are on the right page if so. One of the brilliant ideas for improving your bank balance is the rental income that you can make just from the comfort of your home. If you take a house visit and focus on that spare room that can help you increase your earnings. The rent-a-room scheme is for your suitability and you can sign up without any difficulty.
This will allow you to enjoy an immediate increase in your income. Also, there is an opportunity for you to have an amount of income that is totally tax-free. The limit of tax-free amount is £7,500 in one tax year. If you are still wandering and need your queries answered for the rent-a-room scheme, we have got you covered here. Further, the discussion of this article involves the points like what is a tax-free rent-a-room scheme, what is the eligibility criteria, and what are the advantages of this scheme.
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What are the Eligibility Criteria for the Rent-a-Room Scheme?
This scheme is open to the tenants who have the option of the main home available for lodgers and furnished accommodation letting. Also, the owners and occupiers of the property can avail of this opportunity if they have any spare room for this purpose in their main home. Even the portion of the main house can be a perfect fit for this purpose. This venture allows the owners to enjoy an amount of £7,500 that is tax-free within the duration of a tax year. If the property is owned by the partners or in the case of jointly owned properties, the amount becomes £3,750 for each partner in the scheme.
Several people confuse this with the condition to be the homeowner. That is not the case at all. Even if you are the tenant yourself and you have a spare room in the main house, you can avail yourself of the opportunity to enjoy the tax-free amount. You can simply rent the room to a lodger, however, you are bound to seek the permission of the owner.
What are the Prominent Advantages of the Rent-a-Room Scheme?
There is no doubt that this scheme brings in a lot of benefits it is a great source to provide accommodation for the lodgers as well as to supplement your income. However, when it comes to the benefits there are certain effects that are mean-tested. In the following, these are listed and explained.
1- Rent-a-Room Scheme and Housing Benefits
This scheme affects if you are working as a social housing tenant. A lot of it also depends on the tenant who is getting the room and how is he classified. Subtenants and the broader are two classes in this regard. Sometimes the tenants avail the option of getting prepared food along with the room, such tenants come under the category of broader. On the other hand, when the tenant is only interested in availing of the room and not the prepared food, the tenant will come under the category of a subtenant. You need to get the categories classified vigilantly as it will affect the income.
2- Council Tax Reduction
Some people are making a living on their own. Now they decide to use that spare room for the tenants. If such an individual is availing the benefit of a 25% single-person Council Tax Reduction because he qualifies for it, he is not allowed to have a tenant otherwise he will stop getting the discount since he no longer qualifies for this with a tenant.
3- Rent-a-Room Scheme and Universal Credit
People who are on universal credit earned money through the sources of lodgers and sub-tenants will not be a part of the income up. This means no tax-free allowance amount will be up for you. This will make it a possible option for you to supplement your income.
How to Opt-In or Out of the Rent-a-Room Scheme?
In case the amount of money that you are earning through the source of renting a room and this earned amount is less than the threshold, tax exemptions will be automatic for you. You will not be required to do anything in this regard. On the other hand, if you are making more money than the limit threshold, you will be liable to file tax returns. Consider doing any one step from the following mentioned points:
- Decide to opt into the scheme. You will have to inform HMRC about this and make a claim while you are submitting your tax returns. This will let you enjoy your tax-free allowance.
- If you decide not to opt into the scheme, you will have to maintain a record of your expenses and income on the property pages while doing the tax returns.
The Bottom Line
Now that you have gathered a fair amount of information about the rent-a-room scheme, we can say that this scheme is a wonderful way to earn extra money and increase your monthly income, however, there are certain points to consider to check if you are qualified according to the eligibility criteria. To enjoy the availability of the scheme will demand to fulfil all the required standards whether you are the owner of the property or living as a tenant. We hope these few minutes of reading will help you to develop a better understanding and handle your tax-free allowances well in the near future.
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Disclaimer: The information about the rent-a-room scheme provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.