Get strangers to pay you (tax-free) to sleep in your bed

Earn £7,500 tax-free by taking a lodger. Wait....what.

From the 6 April 2016, the amount you can earn tax-free letting a spare room via the Government's Rent a Room scheme has been boosted from £4,250 to £7,500/year.

The scheme applies when you rent out a furnished room in your home to a lodger or or take short-term guests through Airbnb (see Airbnb Room Renting Tips). It also applies if you run a B&B/guest house. It works whether you live in England, Wales, Scotland or Northern Ireland.

If you're renting out a room, you have two options to reduce tax, though you can only use one of them, not both. So work out the best option for you first.

The Rent a Room scheme. This is a huge tax break for most and really ups the gain. You don't pay tax on the first £7,500 you make each year from renting out a room (halved if you share the income with a partner/someone else).

If your income's below this threshold, you don't need to do anything, as the tax exemption is automatic. If it's higher, you must complete a tax return – you then opt into the scheme and pay tax on the remaining amount. For more, see the Government's Rent a Room scheme info.Deducting expenses. Alternatively, HMRC allows landlords to knock certain costs off before working out how much tax to pay. This includes the guests share of utility bills and home insurance (see the quick question below for more).

You can choose not to opt in to the Rent a Room scheme and instead record your income and expenses on the property pages of your tax return. This can be a bigger saving in a few cases - though if your expenses are less than £7,500 it's likely you may be better off with the Rent a Room scheme.

If you rent out your entire property rather than just a room through Airbnb etc, this is your only option, as you can't take part in the Rent a Room scheme.

 

How to find a lodger

 

If you want to let a room on a longer-term basis, try SpareRoom and the room-to-rent section of Gumtree, which hook up people with housemates. Both are free to list on, though there are optional upgrades such as promoted adverts.

Another option's MondaytoFriday, a site geared towards part-time renters looking for weekday-only places, so you get your space back at weekends. A standard ad that runs for six weeks costs £29.95, so it could be worth trying Gumtree or spare room first and marking your listing 'Monday to Friday only'.

Temporarily rent out a room or your whole home on Airbnb

Airbnb and other similar sites link up owners with travellers hunting for a short-term place to stay, whether for holidays or sports events like Wimbledon. If you're renting out a room for holiday stays (not the whole house), you get the £7,500 Rent a Room allowance too. Our 20+ Airbnb Hosting Tips guide is a crash course offers safely letting your spare room or entire property for short periods.

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