If you have a spare furnished room in your home, or if you manage a bed and breakfast, you may be eligible to participate in the Rent-a-Room scheme. Since 6th April, the scheme allows a resident landlord to earn up to £7,500 (an increase from £4,250) tax-free annually for letting out space in his or her home. However, the scheme does not apply to the following accommodations:
Also, you cannot use the scheme if you let your UK home while you live abroad. Over the course of the year, if you earn less than £7,500 from letting out a furnished space to a lodger, the tax exemption is automatic and there is no additional paperwork that you would need to complete. However, if you earn more than £7,500 from letting, you must complete a tax return and state that you are opting into the scheme.
Since the rate increase was announced in the Summer Budget 2015, almost a quarter of a million homeowners have advertised for lodgers. Clearly letting a spare room—whether it is for a weekend or several months—could be quite beneficial financially. However, before you begin letting that spare room, there are several things to keep in mind: