Individuals should be able to earn £10,000 a year tax-free in the "sharing economy" by renting out their spare rooms, cars or other assets, a business leaders' group has said.

A growing number of householders are making money by renting out all or part of their homes temporarily to strangers through websites like Airbnb, and other schemes allow people to hire assets ranging from vehicles to tools, musical instruments, parking spaces and even dogs to take for a walk.

The Institute of Directors urged the Government to support the trend by extending the existing Rent A Room scheme, which currently permits a tax-free income of up to £4,250 from overnight stays, to cover other shareable assets.

As a first step, the allowance should be raised to £6,960 to take into account inflation since its creation 18 years ago, before being raised in line with the current personal allowance of £10,000, said the IoD.

But in a report, entitled Share the Wealth, the IoD warned that many of its members (45%) said they would not feel comfortable interacting in the sharing economy with people they do not know, against 35% who said they would. Some 85% of IoD members said some form of insurance would be important.

The report's author, IoD deputy head of policy Jimmy McLoughlin, said: "The Government has made clear its desire to establish the UK as a global leader in the sharing economy, and we welcome this commitment.

"At its simplest, the sharing economy is about letting people make the most of their assets and the Government should establish a tax regime that encourages and supports this.

"The original Rent a Room allowance was brought in as recognition that thousands of people had the means and opportunity to supplement their income in this way, and our proposals represent a modernisation of that same understanding."

Mr McLoughlin said that trust would be central to the success of the sharing economy, and that insurance and identity confirmation services can be expected to develop alongside the growth of the sector.

"The UK is extremely well placed to maximise the social and economic benefits of the sharing economy and the Government has a good model to follow in developing the right regulatory framework, based on last year's regulatory proposals on crowd funding and its current review of digital currencies," he said.