Growing numbers of households are taking on a lodger in order to earn some extra cash, often to help pay the mortgage. Many of us are feeling squeezed but the rental market remains buoyant, partly because many people can't get onto the property ladder themselves.
The Cornish city of Truro is a good example: there's been an 89% rise in the number of live-in landlords, according to house-share website SpareRoom.co.uk. But the numbers are growing across the UK, so I've been taking a look at how the scheme works.
The Rent a Room scheme
In order to qualify for the tax break, you have to be letting a room in your family home, ie the one in which you and your family live most of the time. If you're part of a couple then you can each earn up to £2,125 each tax-free — the allowance isn't doubled.
You don't have to be a homeowner to qualify, but obviously you'd need to check your landlord is happy for you to take on a lodger. Similarly, if you do own your home then check your mortgage agreement allows you to let part of it out.
Both tenants and homeowners should check that having a lodger doesn't cause a problem with their home insurance. It might sound counter-intuitive — after all, an extra adult in the house makes it more likely that someone will be home at any one time — but taking on a lodger can invalidate your cover, even if they are not involved in any claim. You'll also want to check whether their possessions are covered too.
Of course, £4,250 is only just over £350 a month and many rooms are let for more than that. If you're earning a greater amount, then you're required to fill out a tax return so that the government can take its share.
If you want your home to yourself at the weekends, you could always offer the room for five days a week. Some tenants, particularly in cities, are working away from home and go back at the weekends.
You can even let your room on a night-by-night basis, through websites like Crashpadder or airbnb.
Lovely lodgers or terrible tenants?
Quite often, renting a room is described as an easy way to make an extra four grand, but I'm not sure I think that sharing my home sounds that easy.
Clearly it is important to find a tenant with a similar lifestyle to your own, neither of you will be happy if one of you likes loud late-night parties and one goes to bed at nine.
But even if you get on with your tenant, is it easy? I spoke to Craig from Warwickshire, who's been a live-in landlord for the last six years. He shares his home with a friend, although he says he wouldn't want to let a room to a stranger.
Craig believes there are benefits to renting a room that go beyond the extra cash. "It's extra company, which is nice if you're single, there's a better chance of someone being in for deliveries and there are two of you to share chores."
Downsides include having to be the one that empties the bin or cleans up if the tenant is a bit sloppy. He warned would-be live-in landlords to keep on top of the extra wear and tear on their property, so that there's no long-term damage.
Craig added that the most important thing is to set clear rules from the start, which can help you avoid arguments: "My main tip is to be clear on the boundaries. If someone rents a room then that space is theirs and you can't violate it. In addition, you need to be really clear on what's communal and what's not. For example, think about toothpaste, milk, toilet roll, washing up liquid, those kinds of things."
Raising the roof
While over four grand a year tax-free might sound very tempting, there are plenty of people who believe it should be higher.
The £4,250 tax-free threshold was set in 1997 and hasn't risen since. But this would be a great way for the government to help struggling mortgage payers generate some extra income. There were 18,100 repossessions in the first half of the year, according to the Council of Mortgage Lenders, and a rise in the tax-free allowance could encourage many more people to consider letting a room.
SpareRoom.co.uk is campaigning for the threshold to rise to £9,000 and has a petition you can sign if you agree.
Keen on the scheme?
So would you be willing to rent a room in your home? Would you give them full access or restrict the rooms they can use? Rent for a week or kick them out for weekends? Or do you already rent a spare room? I'm interested in hearing about your rent-a-room experiences in the comments below.
Even if you're not pinching pennies, letting out a room could help you clear your mortgage more quickly — most banks let you repay an extra 10% a year. That's got to be very tempting.
My opinion is that I might be willing to rent a room to a friend but I'd hesitate to let a complete stranger move in. While you can ask a potential lodger for references, demanding a CRB check might put them off. With a young child in the house, I'd want that kind of security before I opened my doors.
Felicity is Yahoo! Finance's money-saving columnist. If you have a money-saving scheme you'd like to see tried out then let us know in the comment box below.
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