Renting out a room - how much b4 I pay tax?
 

Completely non-bike related-ish, but were I to rent out a room in my home, how much can I make before I have to pay tax on it's income?
I quite fancy another sports bike, so the best time to buy would be late Jan - Feb, so if I can make some £ between now and then....!

Thanks

Tim

It's about £3-4K ish. you should be able to find exact amount on IR website if you search on 'rent a room'

It's £4250 before having to pay tax.

Yep £4250!

Have you seen the price of Benelli's of late?
They're getting rid of them BIG style.
Maybe .............

Tim

http://www.direct.gov.uk/MoneyTaxAnd...4&chk=fR%2BHB2

How the scheme works
The Rent a Room scheme is an optional exemption scheme that lets you receive a certain amount of tax-free 'gross' income (receipts before expenses) from renting furnished accommodation in your only or main home.


Who can take advantage of the scheme?
You can choose to take advantage of the scheme if you let furnished accommodation in your only or family home to a lodger. (Your only or family home is the one where you/your family live for most of the time. A lodger is someone who pays to live in your home, sometimes with meals provided, and who often shares the family rooms.)

A lodger can occupy a single room or an entire floor of your home. However, the scheme does not apply if your home is converted into separate flats that you rent out. In this case you will need to declare your rental income to HM Revenue & Customs (HMRC) and pay tax in the normal way. Nor does the scheme apply if you let unfurnished accommodation in your home.

Tax on residential property income outside Rent a Room



Do you have to be a home owner?
No. You can choose to take advantage of the Rent a Room scheme, regardless of whether you are a home owner or are renting your home. However, if you are renting, you should check whether your lease allows you to take in a lodger.

If you're a mortgage payer it's best to check whether taking in a lodger is within your mortgage lender's and insurer's terms and conditions.




If you share a home and both let a room or rooms
If you are both letting furnished accommodation in your joint home, you will each be entitled to receive half of the allowance (up to £2,125 for the 2005-2006 tax year) without paying tax.


If you provide meals and laundry services
If you charge for additional services, you will need to add the payments you receive to the rent, to work out the total receipts. If you get more than £4,250 a year in total, you will have to pay tax, even if the rent is less than that.



The advantages and disadvantages of the scheme
There are advantages and disadvantages of the scheme – it’s simply a matter of working out what is best for you.

The principal point to bear in mind is that if you are in the Rent a Room scheme you can’t claim any expenses relating to the letting (for example, wear and tear, insurance, repairs, heating and lighting).

To work out whether you will be better off joining the scheme or declaring all of your letting income and claiming expenses on your tax return you need to compare the following:

how much income you are left with after your expenses
the amount of your receipts (rent plus any income from laundry services, meals, etc) over £4,250 or £2,125 if letting jointly (2005-2006 tax year)
If you opt out of the scheme (or simply do nothing) you will pay income tax on the first amount. If you opt into the scheme you will pay tax on the second amount.

HMRC publishes some example calculations to help you decide which method would be best for you.

Example calculations published by HMRC (external link)
Expenses you can claim outside the Rent a Room scheme

Rent a Room scheme and running a business
HMRC helpsheet for traders on the Rent a Room scheme (external link)

How to opt in or out of the scheme
If you want to opt in

if you don't normally receive a tax return and your receipts are below the tax-free thresholds for the scheme, the tax exemption is automatic so you don't need to do anything
if you wish to opt in and your receipts are above the tax-free threshold, you must tell your Tax Office - you can do this by completing a tax return and claiming the allowance



If you want to opt out


just complete a tax return within the usual deadline and declare the relevant lettings income and expenses on the property pages
Contact details for all Tax Offices (external link)
Find your Tax Office through an HMRC Enquiry Centre (external link)