When making money from renting property, there are plenty of options available. However, the right agreement must be in place to ensure that those renting out a room are safeguarded and benefit from additional income.
The Rent a Room scheme is available to homeowners and tenants, allowing them to earn up to £7,500 tax-free. Although the Rent a Room scheme will enable tenants to enroll, they must ensure their current lease allows for a Rent a Room tenancy agreement.
Renting out a room in a property where it is not permitted affects those staying in the room and could also affect your tenancy. If there are any uncertainties when taking advantage of the Rent-a-Room scheme when renting, you should speak to your landlord as soon as possible.
How Do I Opt Into the Rent-a-Room Scheme?
Those only receiving the threshold of £7,500 per year or below do not need to do anything. Those earning more need to confirm any additional income to the HMRC, and the tax-free allowance will be applied.
Couples can take advantage of the Rent-a-Room scheme, but each person will only receive £3,750 tax-free. Those who own their home must ensure that their mortgage allows for subtenants.
Those wishing to opt out of the Rent-a-Room Scheme simply need to record any income on the property pages of a tax return.
The rent paid needs to be discussed between the subtenant and landlord, and record the agreement made using a Rent-a-Room tenancy agreement.
Can I Take Advantage of the Rent-a-Room Scheme If I Receive Universal Credit?
Those who receive Universal Credit can receive payments from lodgers and subtenants up to the tax-free allowance of £7,500 without payments being affected.
However, earnings over this amount will need to be reported on your account and could mean that payments from Universal Credit are amended while you receive payments via the Rent-a-Room scheme.
Are There Any Allowable Expenses with the Rent-a-Room Scheme?
Unfortunately, there are not any allowable expenses with the Rent-a-Room scheme. However, it is advisable to retain any receipts if you want to opt-out of the scheme in the future, as there may be an allowable expense associated with other types of tenancies.
Although the Rent-a-Room scheme has no allowable expenses, the £7,500 tax-free allowance can still make it a worthwhile consideration for tenants and homeowners.
Do I Need a Rent-a-Room Tenancy Agreement If I Receive Housing Benefit
Although those in receipt of housing benefits can take advantage of the Rent-a-Room scheme, their benefits could be affected depending on how the rented space is classified. Those staying in a room are referred to as a lodger or sub-tenant.
Although the two terms are used interchangeably, there are some differences to be aware of.
What Is The Difference Between a Lodger and a Sub-Tenant?
If the person renting the room also receives meals, they will be classified as a lodger. In these instances, the first £20,00 received from weekly rent will be disregarded, in addition to 50% of the remaining amount.
However, the remaining profit could affect housing benefit payments. Although this won’t always be detrimental, it is worth checking whether the scheme is the right fit for your requirements before opting in.
Those who only pay for the room will be classified as a sub-tenant. In these circumstances, the first £20.00 of the weekly rent is disregarded, but the rest will be considered income. As with those considering lodgers, these profits could mean that future housing benefits payments are affected.
Why is a Rent-a-Room Tenancy Agreement Important?
Regardless of the type of tenancy you are planning, both parties must be aware of rent payments, due dates and what is included in the price being paid. Verbal contracts are all good and well until something goes wrong.
The Rent-a-Room scheme is designed to supplement your income, and although completing a Rent-a-Room tenancy agreement can seem like an additional expense, it will cost much less than the legal fees that can be incurred when attempting to chase unpaid rent.
Can I Create My Own Rent-a-Room Tenancy Agreement?
Although it is possible to create your own tenancy agreement, you should always enlist the services of a professional. Many assume that anything can be included in a Rent-a-Room tenancy agreement, but this isn’t the case.
As such, a tenancy agreement containing illegal clauses like cleaning fees cannot be used and could lead to excessive legal fees in some instances.
Do Earnings from a Rent-a-Room Scheme need to be declared?
As well as ensuring you have the correct documentation in place when taking advantage of a Rent-a-Room scheme, you must also ensure that financial records are kept in order.
A Rent-a-Room tenancy agreement will detail the amount of rent that needs to be paid, and if earnings do not exceed the tax-free allowance, then nothing needs to be declared. However, if the rental payments exceed the allowance, the difference must be reported via a Self-Assessment.
Should I Download a Rent-a-Room Template from the Internet?
When searching for various legal forms online, some websites provide templates that can be used. Although these can be beneficial in some instances, many will not cover the Rent-a-Room scheme and could be missing essential details.
As with creating your own Rent-a-Room tenancy agreement, downloading a template could mean you incur additional legal costs that cost more than the draft of an official Rent-a-Room tenancy agreement.
Legal Matters Made Simple Provides Professional Tenancy Agreements are Affordable
Given the importance of a Rent-a-Room tenancy agreement, those wishing to take advantage of the scheme will be searching for an affordable option. Fortunately, Legal Matters Made Simple can offer a wide range of legal letters and contracts, including tenancy agreements.
If you are ready to take advantage of the Rent-a-Room scheme, then why not contact Legal Matters Made Simple to discuss your requirements in more detail?