Earn £144 a week from your home tax free this winter and ‘don’t have to tell HMRC’ | Personal Finance | Finance

As the cost of living rockets, this could be a tempting way to make a bit of extra money to tide you over the winter.

Many people have never even heard of the Rent-a-Room scheme, which could allow you to earn tax-free income by taking in a lodger.

You can earn up to £7,500 a year in rental income before it becomes taxable, or half that amount if you share the income with a partner or someone else. 

That is the equivalent of £144 a week and you do not even have to complete a tax return, unless the rent you charge exceeds that sum.

Under Rent-a-Room, you can let out furnished accommodation in your home, either one room or more.

Not everybody will want to take in a lodger, but done properly it can generate some desperately needed funds and maybe even provide a bit of company as well.

You need to understand how the scheme works before giving it a go, and prepare your house while taking some precautions.

Rent-a-Room is a lot easier if you own your home. Those who rent their property will have to get permission from their landlord, who may well refuse.

Jeff Djevdet, property expert from Speed Property Buyers, said: “If your landlord does agree, get permission is writing to cover yourself if any problems arise in the future.”

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You can advertise for lodgers on sites like Spare Room or Gumtree. Trust your gut feeling and always take up references, Djevdet added. “Draw up some ground rules and again, get these in writing.”

You can charge what you like but must agree the amount with your tenant beforehand. For added security, put it in writing.

Agree a set monthly payment date and consider asking your lodger to put down a deposit, too. You will be responsible for council tax but can include part of the cost in the rent. 

You must tell your council if having a tenant means you’re no longer entitled to a single person’s council tax discount. 

Remember that your water and heating bills will rise so allow for that, too.

Draw up some house rules covering what the lodger can and cannot do at the property. For example, any cleaning duties, whether people can stay over, and rules on pets and smoking.

You should also decide shared utilities they can use, if they should pay towards broadband or telephone, and how to pay for any damage to the fixtures or fittings. You have to expect some wear and tear.

Before showing a room, give it a good tidy and clear out your clutter so that it looks at its best and ready to move into, said Vlatka Lake, storage expert at Space Station. “Most lodgers will expect some basic furniture such as beds and sofas, but will draw the line at your family belongings and pictures being scattered around.”

When deciding how much to charge, check local letting agents to see how much rooms cost in your local area. 

In London, renting a room brings in £186 a week, on average, with Edinburgh (£183), Bristol (£176), Oxford (£176) and Manchester (£169) also lucrative.

If you feel you can charge more than £144 a week, you have to decide whether you want the effort of paying tax on the surplus.

If the income does become liable for income tax, you can deduct letting expenses such as utility bills, insurance, maintenance and repairs (but not home improvements). 

Rent-a-Room is not for everyone, but the chance generating a regular income will tempt some, especially as the money is tax-free.

Just make sure you plan carefully to avoid the potential pitfalls.