If I let a room, do I have to pay tax?

22 August 2012

Q

Is it true I can earn £4,000 from renting out a room before I have to start paying tax on the income? I am a basic rate taxpayer.When do I need to let HMRC know about the additional income? I have been renting out a room since February.
From
MS, New Malden

A

The government's 'Rent a Room' scheme allows you to receive up to £4,250 a year tax-free for letting a room in your main residence.

It doesn't matter how much your other earnings are. If your rental income is less than £4,250 per year you do not have to inform HMRC and you do not need to complete a self assessment tax return, unless you already do so for your other income.

If the total amount of income you receive is more than £4,250, you have to declare the full amount by self assessment, and pay tax on any income above that if you've used up all of your allowance.

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You can find more information about the 'Rent a Room' scheme at direct.gov.uk.

Bear in mind though that you may need permission from your mortgage provider to let out a room in your home (if you have a mortgage) or the landlord if you are a tenant yourself.

Taking in a lodger can also affect your home insurance so it's worth looking into those two aspects of letting out a room as well.