It won’t come as a shock to anyone that we’re slap bang in the middle of a cost of living crisis. Making ends meet and paying all your bills on time is obviously a priority for most people at the moment. To help it’s worth reminding people about three tax free benefits that could be advantageous to the household coffers.
Earn £7,500 from renting a room in your house
Known as “The Rent a Room Scheme” this allows a householder to earn up to a threshold of £7,500 per tax year (6th April to 5th April) from letting out furnished accommodation in your home. There will be no tax to pay on the amount earned. The amount is halved if you share the income with your partner or someone else if for example the property is jointly owned.
You do not have to own your property to be eligible although do check your lease to ensure you can sublet.
The £7,500 is the gross income received and, under the scheme, there is no allowances given for costs.
So if you do have a spare room going begging now may be a good time to clear it out, give it a lick of paint and dash out to that well know Swedish furniture retailer (other stores are available) to furnish it.
This might not suit everyone but £7,500 tax free is not to be sniffed at and it may be that someone who works locally is looking for reasonably priced accommodation during the working week leaving the house to yourself at the weekends.
There are some practical issues to consider such as checking your insurance cover, does your mortgage or rental agreement allow lettings as well as continued eligibility of any applicable benefits or council tax discounts given.
The scheme can be used if:
- you let a furnished room to a lodger e.g. via Airbnb or other accommodation sites
- your letting activity amounts to a trade such as running a guest house or bed and breakfast business, or you provide services, such as meals and cleaning
If you are eligible for the scheme you do not need to tell HMRC about your rental income but it is worth keeping basic records to prove that your gross income did not exceed the threshold.
The scheme cannot be used if:
- the accommodation let is not part of your main home
- it is not furnished
- the accommodation is used as an office or for any business although your lodger can work from home
- you are abroad when you rent your home
More details on the rent a room scheme can be found at https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme and the HMRC help sheet at https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet
Earn £1,000 tax free from side hustling
A tax incentive known as “The Trading Allowance” allows you to receive £1,000, or less, gross income from trading in one or more endeavours without having to tell HMRC about it.
Equally if your gross income from all trading is more than £1,000 you can use the tax-free allowance, instead of deducting any expenses or other allowances. This means that you simply deduct the trading allowance from the gross income up to the value of £1,000.
The types of endeavours that would qualify for this scheme are:
- any self-employment
- casual services for example, but not limited to, babysitting, gardening, cleaning, ironing, pet walking or sitting
- hiring personal equipment e.g. games or gaming, hiring out your power tools, lawn mower, DJ equipment etc
Conditions for using this scheme do apply. So it is worth checking out the small print at https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
Earn £1,000 tax free from a property business
Similar to the Trading Allowance, the “Property Allowance” means that you can earn up to £1,000 gross income a year from land or property. It should be noted that you cannot use the property allowance on income from letting a room in your own home under the Rent a Room Scheme detailed above.
However this could be used for something like letting out your drive for parking.
Once again do check out the detail at https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
“This blog contains details of three ways that HMRC allow you to earn up to £9,500 without paying tax. These are genuine HMRC schemes and allowances. Links to the HMRC site are given to show the legitimacy of the schemes and allowances.”
As with any tax advice, if you are uncertain then seek out the services of a reputable and suitably qualified accountant or tax advisor who can ensure that you comply with the relevant tax laws and rules.