Tax and renting to holidaymakers
21st July 2016
Around the holiday season, everyone's scratching around behind the sofa for a little extra cash. If you've got a home to rent out while you're away, you could be looking at thousands of pounds coming in. In fact, even just a spare room can net you some serious money.
You might already have heard rumblings about the "sharing economy" with services like Air BnB. All around the world, people and companies are pooling resources and getting ahead in ways they couldn't alone. Maybe you assumed it couldn't apply to you. You might be surprised, though - and you could be missing out on a lot of cash.
Here are a few pointers for getting the most out of temporary renting:
Renting Out a Spare Room
Short-term rental of a spare room doesn't have to be a big hassle. There are several decent websites designed to make it easier, and it can be a big cash boost for you. Outfits like Airbnb and 9flats can help hook you up with guests, and sometimes offer protection, too (like insurance).
Of course, you'll need to have enough space for a short-term guest, and a lot depends on the area you're in. You'll probably have to get used to cleaning up after your visitors, too. It's like having a hotel room in your house.
If you find renting to holidaymakers suits you, you could even look into going further by taking in a lodger. If you can spare the space, it might actually be easier than dealing with a succession of short-term guests.
Renting Out Your Home While You're on Holiday
If you're going to be away for a few weeks, renting out your whole home might be a good way to claw back your holiday costs. Instead of sitting empty, why not have your place working for you while you're gone?
Again, there are websites set up to make all of this simpler. As long as you've got the right insurance you shouldn't have too much to worry about. You might be able to charge a security deposit if you're worried about having strangers in your house while you're not there.
Tax-Free Rental Income
Here's where it gets serious. The taxman lets you earn up to £7,500 a year from renting a spare room. That's right; he won't try to take a penny of it! This is called the "Rent a Room Scheme", meaning you can't use it if you're renting out a whole property.
If you make over £7,500, you'll need to file a Self Assessment tax return. Still, if you're looking to keep things simple, Rent a Room could well be the way to go.
There's another option to consider, if you're willing to roll your sleeves up a bit. If you don't opt into Rent a Room, you claim expenses against your rental income and pay less tax. Expenses include things like mortgage interest, utility bills and Council Tax. It's more work, and you have to know exactly what you're allowed to claim for. In some cases, though, it can work out better for you in the long run.
Remember: It's Not All Tax-Free
If you're renting out your whole property, you can't use the Rent a Room scheme. That means filing Self Assessment returns and no tax-free £7,500 rental income per year.
On the other hand, from April 2017, all your property-based income will be tax-free up to £1,000. For short-term rental agreements, that's a pretty nice boost.
Pick a Price
Be realistic about what people will pay to stay in your area, and be prepared to be flexible about it. You might want to check what other people nearby are charging so you don't pitch too high or low. The time of year can make a difference, as can local events and attractions.
As you get more established you might start to pick up reviews on sites like Trip Advisor (or even just good word of mouth). These things are all good signs that you might be able to charge a little more. Discount rates for regular guests are also worth thinking about. A slightly cheaper room that's never empty is much better than an overpriced one that's never occupied.
Check You're Not Breaking Any Insurance Rules
One thing to consider when thinking about renting a room or property is your insurance. Your home insurance probably doesn't cover you for renting. Even worse, you might be breaking your insurance agreement by even taking in guests. Talk to your insurance company or get independent advice before you take the rental plunge. You might end up glad you did.
Make Sure Your Mortgage Lender or Landlord Doesn't Mind
This is all pretty obvious stuff, but don't overlook it. The money you'll make from renting isn't worth getting into serious trouble over. If your mortgage lender doesn't like the idea, you could be lining up some problems for yourself.
If the property isn't yours to begin with, you might not be able to rent it out at all. If you've got a landlord or freeholder to answer to, make sure they're okay with what you're doing.
Renting out a room or property can be a great way to pay for your own holidays. If you put your back into it, it can even be a pretty serious longer-term money-spinner. Just make sure you go into it with both eyes open.
If you're a RIFT customer remember to tell us if you're thinking of renting out, or if you've already started. It could make a big different to your tax return and we'll show you the best ways to stay safe and make the most of your property.
Get in touch any help you need with self assessment tax returns or tax refunds by calling 01233 62864, we're here to help.