Making money from your spare room BnB
This Blog explains the impact on taxes when you are ‘Making money from your spare room BnB’. Are you slogging through your mortgage, trying to think of a way to make a little extra money on the side? You know, you could always make your house work that little bit harder for you. Recent changes to the government’s Rent a Room scheme have made making money out of your spare room- rather than using it for clutter and junk- even easier and even more appealing. Read on to find out more! The tax-free allowance for taking in a lodger has gone up The government’s Rent a Room scheme was set up to encourage families with a spare room or rooms in their homes to open them up to lodgers and guests, with some nifty tax breaks. When it was set up, that limit you had to earn before paying tax was £4,250; but as of April 2016, it’s gone up to £7,500 a year. That, though, is not the total amount that you can charge in rent, so do feel free to charge more. That being said, it’s unlikely that you will charge any more than that for a room unless you’re living in London! £7,500 a year, depending on your circumstances, could be a lot of money. It could even be enough to cover the cost of your mortgage, so it’s not money to be sniffed at. Your tax break is automatically applied Even better, you don’t have to lift a finger so long as you’re not charging more than £7,500 per year. If you earn less than that from your room, your exemption is automatic, meaning that you don’t have to file taxes or inform the government of anything. If you do earn more than that, then you will have to complete a tax return, although the government has lots of helpful info on their website. There are also helpful guides and forums all over the web that you can find with a quick Google search. Alternatively, if you want a tax accountant to help you with the Rent a Room scheme and to file on your property income, you’ll find the process simple as well as rewarding. Accountants in Birmingham and London, and around the rest of the country, are ready and prepared to help you. That being said, it’s unlikely that you’ll be making enough from the scheme for this to be a necessity. There are different ways that you can choose to let out your room The Rent a Room scheme gives you great freedom over how exactly you make money from your spare room. The ‘classic’ way is to rent it out to a lodger: this will give you a fixed income over, if you so choose, a fixed length of time. The Rent a Room scheme was designed with lodgers in mind since it has the dual aims of helping homeowners to make money and making more space available for renters. There are a few rules and regulations that you have to abide by if you do choose to rent out to a full-time lodger. Like any other form of rent, if they pay weekly, then you will have to provide them with a rent book. And just like renting out a house or flat, you can ask for a deposit and choose to accept Housing Benefit if you would like. You will be responsible for Council Tax, although you can choose to cover this cost in the amount of rent that you charge, and you may have to inform the council that you are no longer entitled to a single person discount. The length of the let is also up to you. It can be periodic, meaning that it will run indefinitely from one rent period to the next, or it can be a fixed term over the course of a number of weeks, months, or years. If you and your lodger don’t agree to the length of the let, it will automatically become periodic, just like a regular rental agreement. You can even list your home on Airbnb and still be eligible for the tax-free band The choice, though, is yours. Because the Rent a Room scheme now allows you to make property income through websites like Airbnb and OneFineStay rather than just through renting out to a lodger. Odds are that you’ve heard of AirBnB by now, but for anybody who hasn’t, it’s essentially an online service that advertises your house as a BnB. They boast more than a million listings, and in ninety different countries around the globe; but before the April 2016 changes to Rent a Room, it was illegal for homeowners to provide short term lets under the scheme. Now, however, the scheme allows you up to 90 days a year when you can let out your spare room or even your entire home. Airbnb operates under the idea that your home is like a regular BnB, so you’re at home while your guests are, but they treat your home like a hotel. OneFineStay (and other websites like it- there are quite a few!) on the other hand, don’t even require you to be at home when your guests come to stay! The way they operate is like this: when you’re away on holiday, or not at home for whatever reason, you can mark your property as available. If there are any available, they’ll then check your guests in, provide them with some basics like clean towels, and even clean your home afterward. This does come at a hefty fee of more than 50% the nightly rate, but even so: you don’t have to lift a finger! If you do choose to go down this route, the rules are much the same, although since you won’t be signing a contract with your guests then much of the rules discussed above no longer apply. The only thing you’ll have to watch out for is that you don’t make more than £7,500 (and do remember that these sites charge fees- so you may want to go down the ‘classic’ route of taking in a lodger, after all). The Accountancy Solutions are specialist accountants for tax who deal with these kinds of problems on a daily basis. To get professional advice please contact our Birmingham or London office.