Oct 11 2007 |
Taking In Lodgers- “Rent-A-Room” SchemeCategory: Landlord Advice |
Ever considered taking in a lodger? A lodger can be a great way of generating income; many thousands of people earn extra income in this way.
To start with, I’m going to list a few of the perks and pitfalls for accommodating lodgers:
The positives
- most obviously, it’s a great way of earning extra cash, which can ultimately help you pay your mortgage and support other financial expenditures you may have
- The Inland Revenue allow you to earn up to £4250 per year (Just over £350 per month) tax-free through the rent-a-room scheme. To be valid for the scheme (tax-free policy), you need to stick to a few rules, which I’ll cover later.
- Your lodger has a license to occupy your premises and not a full tenancy - no interest in the property - therefore it’s a much simpler process to remove unsuitable lodgers than it is tenants You have much more control over the situation with a lodger than you do with full tenants. This is because Lodgers occupy your home on licence, and they do not have security of tenure - unlike tenants. Lodgers cannot call the place their own, therefore they have no right to stay on if you give them notice to leave.
- If you live alone, a lodger’s presence alone can provide you with security
- Good lodgers can become great friends; they can even become free house sitters, child and pet minders. Let’s face it, living with someone new and random could be fun; you may find yourself with a new drinking partner
The negatives
- you could potentially end up living with a stranger. So it’s important you get someone trust worthy in. It’s always best if you can get a friend in, or a friend-of-a-friend; basically anyone that comes with a good recommendation from someone you can trust.
- you’ll have to provide a communal area, such as a bathroom and kitchen.
- you may find it more difficult to gain personal space and “alone time” around the house. So walking around in your undies or cooking naked may no longer be an option. Unless, of course, by some miracle you’re both nudists! In that case, game on.
- Lodgers and landlords aren’t always going to agree on everything, so the odd debate here and there is more than possible.
- Your tenant has the right to invite guests over, so you may have to play host for random guests and have unknown faces around your house.
The Rent a Room scheme
The main benefit of getting a lodger is that you can apply for the “rent a room scheme”, which as mentioned, entitles you to a tax free income of up to £4250. The Rent a Room scheme is an optional exemption scheme from renting furnished accommodation in your only or main home.
To avoid creating full tenancies and to qualify for the rent-a-room scheme, you must meet the following requirements:
- The room you let must be in your main residence, where you live most of the year. If you move out the lodger could become a full tenant by default.
- The lodger must not have exclusive possession of a self-contained part of your property. Cooking facilities and bathroom etc. need to be shared with you.
- The room you let must be for the lodger to live in, not to run a business.
- If you are a tenant yourself you will need permission from your own landlord before you take a lodger. You will need permission in writing.
- You will need to inform your insurers - they may want to change the cover slightly, and it’s a good idea to ask the lodger to insure their own possessions. It’s unlikely your household insurance will cover the lodger’s possessions.
- You need to inform your mortgage lender, though it’s unlikely they will have any objections.
The advantages and disadvantages of the scheme
Although the scheme sounds like a decent deal, it might not be for you; it’s simply a matter of working out what is best for you. The principal point to bear in mind is that if you are in the Rent a Room scheme you can’t claim any expenses relating to the letting, for example, wear and tear, insurance, repairs, heating and lighting.
To work out whether you will be better off joining the scheme or declaring all of your letting income and claiming expenses on your tax return you need to compare the following:
- how much income you are left with after your expenses
- the amount of your receipts (rent plus any income from laundry services, meals, etc) over £4,250 or £2,125 if letting jointly (2007-2008 tax year)
- If you opt out of the scheme (or simply do nothing) you will pay income tax on the first amount. If you opt into the scheme you will pay tax on the second amount.
Extra “rent a room scheme” notes
- You will not need to worry about health and safety, environmental health and gas checks, as you would with a full tenant. However, it never hurts to make take those precautions regardless.
- As mentioned, you’re taking a huge risk when taking in a stranger as a lodger. We all tend to be too trusting of people we don’t know - letting a complete stranger into your home is a risk.
- It is most advisable to verify the lodger thoroughly. You should carry out credit searches and referencing on prospective lodgers, just as you would a tenant - unless you know they are genuine or they come recommended from a reliable source.
- Legally you don’t need a formal agreement, but it is an extremely good idea to have one, as it can prevent a lot of arguments later.
- Renting out a room may also affect your contents insurance. Most insurers will put up premiums, but it’s still important to inform them if you want to be sure that your belongings are protected. If you don’t tell them, the insurance may not be valid.
- Taking in a lodger will most likely affect the amount of benefits you get if you’re claiming. For example, if you’re receiving housing benefit and you take in a lodger, the amount you get will almost certainly be reduced as they’ll assume your lodger is paying rent. This will be the case even if your lodger is living rent-free. If you simply don’t tell them, you may end up having to repay an overpayment, or be prosecuted for fraud.
Have you ever been a lodger or taken in a lodger or even simply considered taken in a lodger? Tell me about it…
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Hi,
Besides my own home I let rooms in my childhood home which I inherited. I occupy a locked room in the house part time so am I exempt from the deposit protection scheme in that case?
I use the self-help Law Pack F301 and add a statement that I occupy that room and have shared access to all the shared areas in the house.
Cheers. Andrew.
Hey Andrew,
Unfortunately because your childhood home isn’t your main residential home you won’t be able to qualify for the scheme. “Occupying” a room in that house won’t qualify you.
Hope i’ve been of some help.
Hi,
We have taken on a lodger under the rent a room scheme in order to help financially.
I know that the lodger should be able to have people round, and we are fine with this, however, how far does this extend in terms of use of our possessions? We have a bouldering wall that we built in our garden. We have said that the lodger can use it, however, his friends are also trying to use it on a regular basis. Are we within our rights to say that they cannot use it? We paid for it, it is in our garden, and it means regular intrusion of people into both our garden and house These people would be welcome as guests to socilise with the lodger, but it just seems that them being able to use our possessions is a bit much (rather like them coming round to do their washing or cooking).
Thanks
Hey Sarah,
Have you spoke to your lodger about this? I would talk to him/her before referring to your legal rights. Your lodger might be understanding about the situation as long as you approach him/her in a nice manner.
Regardless, you are with in your rights to tell him/her to stop letting his/her friends from using your wall.
Lodgers don’t have a legal status in the same way tenants do. Additionally, a lodger has no right to stay on in your home if you want them to go.
Kind regards.
Hiya.
Thanks very much for your reply.
We have spoken to the lodger, and he wasn’t very happy, which is one reason why I was interested in hearing what our rights were. When we spoke to him we just said that we didn’t mind occasional use of the wall by friends, but we would like to be asked in advance as it is an intrusion to have people using our house like a free training facility.
Thanks again.
Sarah
Hi, I am looking to rent a room in my property of which I reside permanently. As I have never done this before I have no idea of the legalities or wording of contracts. Could you help point me in the right drection? Many thanks in advance. Leanne
Hey Leanne,
Don’t worry, you’re not expected to write the contract yourself. You can find loads of prewritten contracts already.
If you google (UK Google)for, “lodger contract”, various sites will offer you contracts for a small fee.
I found this site:
http://www.universalhomes.co.uk/docucenter/index.html?gclid=CO-H7JLv65ACFQcrlAodLWiZrA
You’ll notice they offer a license agreement for lodgers from £4.75. I’m not endorsing that site, because it’s just random, but that’s the way I would get a contract.
After getting the contract, you can tailor it and ammend it in any way you want. You can add/remove any of the clauses…
I hope i’ve been of some help. Let me know how it goes. If you have anymore questions, just ask.
hi, i had a lodger who moved out before paying a part of the rent. However, there was no written agreement. can someone advise? could this be taken further and stand in court perhaps?
many thanks,
luke
hi,
is it possible to claim unpaid rent even if there was no written agreement with the lodger? or would it be simply ‘his word against mine?’
many thanks
luke
What would your advice be if the lodger who has answered to a “Would suit Professional Non-smoking person,Bond & Refs required” which I have had. And the lodger turns out to be non-professional,lays around in bed more than not and smokes. Payments for recent rent paid in dribs and drabs,how would you deal with this one ?
I want to use this scheme to take in a lodger. My home has two bathrooms and an extra utility/kitchenette room and I would like to keep my main bathroom and main kitchen private for myself. The rules seem to say that I must share a bathroom and kitchen with a lodger. Could someone comment please.
Terry
Hey Terry,
As long as you provide your lodger with ANY kitchen and bathroom, that’s fine. If you have two if each, you can make the two rooms you want to keep private.
Just make sure it’s clear in the contract.
Thank you for that answer. Although my house is not divided into two there are facilities for two families to share the house each with their own kitchen’bathroom’bedroom etc. So I was hoping that I could still rent out on the rent a room scheme even though there is more than ‘one room’ available to rent out. If I charge more do I still get the tax free rent a room allowance and pay tax on the rest please.
Many thanks
Terry
Terry,
Just a big ‘thank you’ for your website, comments and advice.
I was particularly relieved to hear that if I have multiple bathrooms etc., I can say ‘these are yours and these are mine’ (I think I’ve understood correctly).
Thanks again - really useful.
Regards
Ian
I am advertising a room for let with the use of wireless broadband. My main computer is situated in my study which I wish to keep private.
If I should be out or away and there is a problem with the wireless broadband does the lodger have the right to enter my study to try and assess the problem/sort it out?
Many thanks
Hello
Could you help to clarify a few things for me.
We are thinking of renting our upstairs using the Rent a Room Scheme to a professional person.
They will have their own kitchen, bathroom, bedroom, living room and study room. We plan to charge £350 per month and then they pay separately for any electricity or gas used and they will have their own telephone which, whilst in our name, is private for their use and they will pay for its line rental and calls. Wireless Broadband is thrown in for free.
Do I take it that I don’t have to include their energy costs and telephone bill to my declared income? If I had separate meters they would pay this direct to the utility company but because we don’t have separate meters I need to calculate a split between the lodger and ourselves and pay the bill myself and ask the lodger for his/her share.
Do I include utilities which are costs incurred and paid for by the lodger as my income or leave it out?
Many thanks in anticipation of your help and advice.
Hey Neil,
You should declare it all, but you can put your lodgers costs under your expenses, so your capital gain is reduced to what it should be
im only 11 and my mum and dad are fostering a 16 year old and they keep asking me if i ok with it which i am this 16 girl looks after me sometimes her and her sister and her mum always drink and use drugs and i dont want that bought in yo my home what should i do??