Rental income up to £7,500 will be tax free!

publication date: Apr 4, 2016
 | 
author/source: Guest article - SpareRoom

Rental income up to £7,500 will be tax free!

On Wednesday, anyone letting a room to a lodger will be able to earn up to £7,500 per year without paying a penny in tax. That’s right, from 6th April 2016, rental income up to £7,500 will be tax free.

Back in July 2015, George Osborne used the summer budget to announce the government would be increasing the Rent a Room Scheme’s tax free threshold from £4,250 to £7,500 – the amount SpareRoom.co.uk had been campaigning for since 2009.

Read - Renting by the Room

The current tax-free threshold was set in 1997 and since then, rents have more than doubled, so it’s fair to say it’s outdated as an incentive for homeowners to take in lodgers. The new threshold will mean that homeowners in 29 of the UK’s 30 biggest cities can earn a completely tax-free income from April – now that sounds more like an incentive to us!

The only city above the new threshold is London, where average rents exceed £7,500 per year by almost £1,000. Average lodger rents in Oxford are now £568 per month, the highest in the UK, outside of London. This means local live-in landlords letting a furnished room to a lodger could earn up to £6,816 per year and these earnings will be completely tax free.

How does your local area compare?

Rank

30 biggest UK town/cities by population

Average monthly lodger rent Jan-Jun 2015 (£)

Annual lodger income (£)

1

London

£708

£8,496

2

Aberdeen

£509

£6,108

3

Brighton

£532

£6,384

4

Edinburgh

£496

£5,952

5

Reading

£488

£5,856

6

Milton Keynes

£468

£5,616

7

Bristol

£456

£5,472

8

Southampton

£436

£5,232

9

Manchester

£409

£4,908

10

Cardiff

£437

£5,244

11

Birmingham

£407

£4,884

12

Portsmouth

£414

£4,968

13

Northampton

£406

£4,872

14

Luton

£418

£5,016

15

Plymouth

£391

£4,692

16

Coventry

£399

£4,788

17

Leeds

£405

£4,860

18

Liverpool

£374

£4,488

19

Newcastle

£406

£4,872

20

Nottingham

£370

£4,440

21

Leicester

£367

£4,404

22

Derby

£368

£4,516

23

Preston

£362

£4,344

24

Sheffield

£374

£4,488

25

Stoke-on-Trent

£357

£4,284

26

Wolverhampton

£345

£4,140

27

Dudley

£364

£4,368

28

Hull

£346

£4,152

29

Bradford

£348

£4,176

30

Belfast

£322

£3,864

The new incentive to let a room to a lodger is great news for homeowners – it could be the difference between being able to afford the monthly mortgage or not, should interest rates rise, or it could pay for life’s nice to haves like holidays and home improvements. It’s also great news for tenants as lodger rents tend to include bills where rents charged by traditional landlords don’t.

Read - Renting by the Room

The Rent a Room Scheme’s new tax-free threshold of £7,500 really is a win for homeowners and a win for tenants – that’s why we spent six years campaigning for it. We’re looking forward to seeing what impact the new allowance has on the amount of accommodation available to lodgers – hopefully supply will rise as we start to make better use of the millions of empty rooms up and down the UK.

Read - Renting by the Room


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