Let your spare room and make thousands

Householders in need of extra cash received some good news in George Osborne's Budget in July: the amount that they can earn from renting out a room will rise to £7,500 tax-free from 6 April 2016.

Known as the Rent a Room Scheme, it currently allows householders to earn up to £4,250 a year tax- free from letting out furnished accommodation in their homes – certainly well below what anyone in London can earn from taking in a lodger.

Annual rent for a double room (including bills) averages out at £8,335 a year in London and £6,071 across the rest of the UK, according to flat- and houseshare website SpareRoom.co.uk.

But with a £7,500 threshold, taking in a lodger will become a much more attractive proposition.

So how do you get started?

Find a lodger

It's never been easier to find a lodger: while you can always stick an ad in your local newsagent's window, you're more likely to get a good response if you advertise your room online.

Popular sites for looking for flatmates or lodgers are SpareRoom.co.uk, EasyRoommate.co.uk and Gumtree.

SpareRoom and EasyRoommate operate in a similar way: you can either advertise your spare room for free or pay a fee (from £10.99 for a week at SpareRoom and from £19.90 for 10 days at EasyRoommate) to place an ad in bold, which appears higher in the search results and includes early access, allowing you to contact would-be renters straightaway rather than wait for seven days.

Gumtree works as an online noticeboard, with prices for seven days ranging between £42.95 and £79.95, depending on the type of advert you choose (see table opposite).

If you don't like the idea of someone invading your home 24/7, another option is to rent your room on a weekdays-only basis. A weekday arrangement will appeal to professionals who live too far away from work to face the daily commute. You can advertise on specialist websites such as Mondaytofriday.com, which charges landlords from £29.95 to advertise, or Fivenights.com, which starts from £29.95 for 90 days.

Rent on a daily basis

If you like the idea of earning some extra cash but know there are times when you want the place to yourself – perhaps when grandchildren stay overnight – then letting out your spare room to holidaymakers could be the answer. Another advantage is that you can charge more for a daily rate for your room. On this type of booking, it's not uncommon for hosts to go that extra mile and offer breakfast for an additional fee – though there is no obligation to do so.

Travel networking websites generally don't charge a fee for listing a property but ask hosts and guests to pay a processing fee. For example, the best- known site, Airbnb, charges hosts a 3% service fee, paying them 24 hours after the visitor has arrived when it's clear there is no problem with the booking. Other websites to consider include Wimdu, 9flats, Roomorama, HouseTrip, Homeaway, Houseshare, Onefinestay and Eventfulstays.

Become a home stay host

English language schools are often looking for families to host foreign students, mainly during the summer. Either contact them direct or join specialist website Hosts International, which is free for hosts. You can earn up to £11,000 a year for hosting two students at a time but you will be expected to provide breakfast and dinner.

Help someone out

If you would like a bit of company and money is not an issue, you could offer affordable, short-term accommodation to young interns starting out in their career.

Currently operating in London only but with plans to expand to other cities, Roomfortea links young people with hosts offering a spare room. Guests typically stay for anything up to six months, with hosts charging between £350 and £500 a month. Roomfortea checks guests' references and charges a fee of 5% of the rent.

Are you covered?

Before you rent out a room, you need to check whether your buildings and contents insurance will still be valid. Insurers tend to be reluctant to insure people sharing accommodation and you may have to switch providers.

"Some policies will not cover you if you have a lodger in the house. They specify that the ‘household' should be you or you and your immediate family. This is because security is that much harder to maintain if there are others residing at the address," says Kevin Pratt, insurance and home services editor at MoneySuperMarket.com

"In some cases, you might have to pay an additional premium to extend the cover, and conditions might be imposed. For example, you might need more liability cover in case the lodger sues you for an injury suffered If you're finding it hard to extend your cover, you can contact a specialist insurer – for example, Home Protect, Endsleigh and Towergate Insurance all offer quotes for shared occupancy, including lodgers and housemates.

It's also worth checking whether the website you choose offers insurance. For example, Wimdu and 9flats both provides insurance cover on hosts' properties of up to ¤5,000 (£3,513).

Other paperwork

Before agreeing to a let, make sure you get a written reference from the potential lodger's employer and current landlord or, better still, phone them up. It's also helpful to ask for copies of bank statements for the past three months, so you can weigh up whether they can afford the rent.

If you have a mortgage, you must tell your lender that you are planning on renting out a room – otherwise you could be in breach of the terms of your mortgage.

The rent that lodgers pay usually includes energy bills but you may need to factor in the cost of council tax. If you live on your own and receive a 25% discount on your council tax, you will need to start paying it in full (although students are exempt).

One advantage of being a live-in landlord is that you will have more freedom to end the arrangement if it's not working out. But while you don't need to sign a formal tenancy agreement, it is wise to have something in writing that covers issues such as the deposit (usually one month's rent), when rent will be paid, and any notice period – a week is not unusual on short lets, while 28 days would be expected if your lodger is with you for six months or longer. It's also worth asking lodgers to sign an inventory just in case items are damaged or go missing.

And remember that if you earn more than the Rent a Room Scheme tax-free allowance (£4,250 for the current tax year), you will need to fill out a self-assessment tax form and pay tax at your usual rate.

More about