With the cost-of-living crisis hitting home for everyone, more people are looking for new ways to generate income. From taking in lodgers to renting parking spaces, families and individuals can capitalise on their existing assets to keep pace with rising living costs.
Tim Walford-Fitzgerald, Private Client Partner at HW Fisher explains:
“A person’s home is usually their biggest asset but it is also one that often contributes the least back in financial terms, if anything at all. This doesn’t have to be the case – there are a number of different ways that people can make money from their home, and it’s important for people to be aware of the tax breaks that they are entitled to so that they can keep more of the new income they are generating.”
Five tax breaks and considerations to be aware of include:
1.There’s room to make some tax free cash
Under HMRC’s rent-a-room scheme, an individual can receive up to £7,500 a year (£625 a month) from letting out a furnished room without any tax liability. This includes capital gains tax, although if this exemption applies, the expenses for providing the accommodation cannot be deducted.
Additional services provided such as cleaning and meals are acceptable within the exemption, however any profit which exceeds the threshold would be classed as trading income and so national insurance charges would apply.
2.Make the most of your spare space with a £1,000 tax free allowance
When renting out spare space such as a parking space on your driveway or a garage for storage, the £7,500 tax-free threshold does not apply. In such cases, an individual can receive up to £1,000 a year tax free under the property allowance. Staying below the £1,000 limit means a tax return does not even need to be filed.
3.Sell your energy back to the grid
Any income gained from tariff payments such as domestic solar panel feeds is free from income tax, provided that 80% of the electricity is used by the homeowner.
4.Tax relief for working from home, sweet home
Post Covid-19, working from home is the new normal for many. HMRC provides modest mitigation for those who are required to work from home. These individuals can claim tax relief for costs of £6 a week through the online portal. A word to the wise, the tax relief cannot be claimed if you work from home as a preference.
5.Renting out a home office? Watch out for Capital Gains Tax
For individuals who are self-employed, it is important to note that any area used exclusively for business purposes may mean that part of a gain on sale is subject to capital gains tax. However, if the space is used on a regular basis for personal matters, the gains are exempt.
Tim adds: “Platforms like AirBnB and JustPark are making it easier than ever for people to make some extra cash from their homes – but they can make it just as easy to forget about the tax you might owe to HMRC. Always make sure to file a tax return if you are earning rental income – typically the 31 January – to avoid any nasty surprises in the long run.”
If you’d like to discuss any of the above areas in more detail, please contact Tim Walford-Fitzgerald