Make some tax free cash from letting that empty room

As letting becomes the only housing option open for many, taking in a lodger can make financial sense if you have a room sitting empty.

The number of lodgers doubled last year to more than a million, according to research by home insurers LV=, and is likely to keep growing as mortgage lenders shut the door on more would-be buyers by demanding big deposits and restrict borrowing.

What’s more, rents collected under the HM revenue & Customs Rent A Room Scheme are tax free, providing the householder keeps within certain limits.

Live-in landlords can charge £4,250 a year rent under the scheme without having to pay tax or even fill in a self-assessment tax return.

That works out at a handy £81 a week or £354 a month extra cash to help make ends meet or to fund a few luxuries.

Taking in a lodger under the scheme is open to homeowners and tenants – but tenants will need written permission from the landlord.

Research for the insurance company showed 30% of landlords with lodgers paid the money straight off their mortgage or other debts.

Although the rents are tax free, anyone planning to take in a lodger should work out if any extra costs will be involved – like higher energy bills, furnishing rooms, decorating and paying a higher home insurance premium.

On the downside, 20% of landlords reported lodgers damaged items in their home and 10% stole belongings when they left. Many landlords find spending a few pounds on tenant checks pays off with peace of mind when introducing a stranger in to the home.

Not all lodgers want a permanent home. Many in London and the larger cities are looking for a crash pad for a couple of nights a week to cut down the commute between work and home. Around 70% of landlords prefer this arrangement as they get to have the run of their home for most of the time.

John O’Roarke, managing director of LV= home insurance, said: “As people struggle to keep on top of their bills and mortgage payments, it makes sense to look for other sources of income. For homeowners that have a spare room, taking in a lodger can be a great way of getting in some extra cash.

“However there are always risks involved when renting a room and all those considering taking in a lodger should vet potential tenants carefully and make sure they have suitable insurance in place.”