Lockdown #2 update: You can still let/rent a home, buy/sell your home, and move home during the lockdown in England starting on Tuesday 5 January 2021 (unlike the first lockdown in March 2020). But you must follow Covid safety guidance.
Taking In Lodgers- ‘Rent-A-Room’ Scheme Guide For Landlords
Ever considered taking in a lodger? A lodger can be a great way of generating income; many thousands of homeowners earn extra income in this way. Interested? Let’s take a look at the details…
The positives of taking in a lodger
- 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 £7,500 per year 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 further down…
- 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 of taking in a lodger
- 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, which means you’ll have less “private” areas.
- 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.
- If you live alone, you will lose the 25% single person discount on your council tax. There may be some exceptions, for example, if the subtenant is a full-time student.
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 (this scheme does NOT apply to “tenants” or “sub-tenants”, only lodgers) 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 £7,500 or £3,750 if letting jointly per 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.
Landlord legal requirements for lodgers
- All UK landlords, including live in landlords, must get a Gas Safety Certificate (CP12), which must be renewed annually.
- From 1st of Feb 2016 all landlords in England need to ensure their tenants have the “Right to rent” in England.
In most cases it should be fairly straightforward- all you need to do is keep a copy of your tenant’s passport with your paperwork and record the date you took the copy. For more details, go to the Landlord ‘Right to rent’ guide.
‘Tenant Fees Act 2019’
This particular section is only relevant to Lodger Landlords in England.
The “Tenant Fees Act 2019” came into force on the 1st June 2019; it’s a legislation that bans and restricts letting agents and private landlords (in England only) from charging tenants & lodgers with certain fees. For example, ‘admin fees’ are no longer chargeable to the lodger, and there are now limitations on how much can be charged for late rent penalties.
The legislation stipulates that the only payments chargeable to lodgers (in connection with their licence), from the 1st of June, is as follows:
- Deposit (capped at five weeks’ rent).
- Holding deposit (capped at one week’s rent).
- Payments to change the licence when requested by the lodger (capped at £50).
- Payments associated with early termination of the licence, when requested by the lodger.
- Payments in respect of utilities, communication services, TV licence and council tax.
- A default fee for late payment of rent and replacement of a lost key/security device, where required under a lodger agreement.
If any fees other than what is permitted above is charged to the lodger, such as ‘referencing fees’ or ‘admin fees’, then the landlord could face hefty fines for enforcing unlawful charges.
This legislation does not affect the landlords right to make claims against any damages or issues or disrepair (that don’t qualify as ‘wear or tear’) caused by the lodger. Please refer to my “Tenant Fees Act 2019” blog post for more information, including more information on the legislation, such as what fees are strictly prohibited.
Extra “rent a room scheme” notes
- 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.
How do I find a lodger?
The good thing is, you don’t need to pay a letting agent to find you a lodger. You can find one relatively easily and quickly by advertising your vacate room on one of the following websites:
- Spareroom.co.uk – The UK’s busiest flat and houseshare website
- EasyRoommate.co.uk – Another extremely popular flat and houseshare website
- Gumtree.co.uk – Extremely popular classifieds website
Who do I need to inform that I have a lodger?
You may need to inform the following (if applicable):
- Mortgage lender – get their permission in writing.
- Possibly your freeholder for a leasehold property – check your lease; it’s unlikely permission will be necessary for a lodger (as opposed to a tenant), but if it is it should be in writing.
- If you’re a private tenant, whether or not your rental agreement mentions subletting, you must get permission from your landlord which should be in writing.
- If you rent from a housing association (although some housing association tenants have the same legal right as council tenants to take in a lodger – see below) there may be a clause in your letting agreement to the effect that taking in a lodger is not allowed, but with the current housing shortage, many housing associations will be prepared to waive this.
- If you rent from a local authority in England or Wales, provided you have a secure tenancy (which you’re very likely to have unless you’re in temporary accommodation – check your rental agreement), you actually have the legal right under the Housing Act 1985 s 93(1)(a) to let a room in your home provided this doesn’t mean your home becomes overcrowded.
- You home insurance provider must be informed or future claims could be refused.
- Local Council Tax department if you get a single occupier’s discount or your council tax is paid for by benefits.
- If you claim universal credit, you can keep the full rent without this affecting your benefit, but you should still inform the DWP and/or your local council, making it clear the new occupant is a lodger paying rent under a written lodger agreement and not a common law partner or family member.
- If you claim means tested benefit other than universal credit, again you must inform the DWP in writing. The first £20 per week benefit is unaffected, but how the rest is affected depends on whether you provide any board for the lodger; see Lodgersite.com.
Will my pension get affected if I have a lodger?
Only if you receive pension credits, which are a means tested income supplement paid to retired people who are on a low income and didn’t pay enough into their state pension while they were working.
Do I have to pay tax on the rental income from my lodger?
If your income from renting your spare room is the rent a room scheme ceiling of £7,500 (which increased from £4,250 on 6th April 2016) or under – regardless of your overall income from other sources, you don’t need to take any action as far as HMRC is concerned, unless you already do a tax return for other reasons.
If you DO pay tax on your rental income (because it’s over £7,500), you can ask HMRC to tax you through PAYE, in which case it would be on your P60. Otherwise, if you needed to prove your rental income, in the absence of an accountant, you would need to request an SA302 – so even if you were using your rent a room exemption, you would need to do a tax return. Whether your rental income is over £7,500 or not, you can still opt out of rent a room if you need to claim a rebate on your room rental. See the Rent a Room Scheme Ready Reckoner tool on Lodgersite.com for full details for your own particular circumstances.
I already have a lodger, can I increase his/her rate?
Legally, you are entitled to raise the rent, provided you’re not within a fixed period on your rental agreement.
To get an idea of the ‘going rate’ you can look through websites like Spareroom.com to see what other live-in landlords are charging their lodgers for a similar proposition to yours.
Where can I buy a Lodger License/Agreement (contract)?
You can buy hard copy licenses from WHSmith – either their online store or on the high street, or there many others you can download. However, beware some free agreements, even those purporting to be written by lawyers – many of these contain wording which could compromise the legal status of the room let!
Here’s an agreement which you can purchase off Amazon, which has received good reviews:
Will renting my room out affect my tax credits?
Tax credits are regarded as a means tested benefit, which means that if you have a lodger you can keep the first £20 per week rental income without it affecting your benefit, but the remainder is affected – unless you provide meals for the lodger, where you can keep half of the remainder.
For example, say you’re paid £90 per week rent, but you always provide a cooked breakfast for your lodger, you would make £55 per week rental income (made up of the first £20 that is disregarded, plus one half of the remaining £70, which is £35).
Can my lodger have overnight guests? If so, how often?
As far as the law is concerned (in all countries, not just England), a lodger has absolutely no right to have overnight guests, unless it’s been agreed as part of the letting contract (the lodger agreement, which can be written or verbal – though if verbal, very hard for either party to prove in a dispute – if it can’t be proved, the basic default legal standard would then stand).
However, having said that, in practice if a lodger is paying rent and behaving properly, it should be regarded as their home too, and it’s not unreasonable to expect to have your partner overnight on occasion in your own home, except if it’s a house share of any description, your house mates and pre-agreed house rules obviously must be considered and there should be give and take.
The Lodgersite.com website says that 2 nights a week is reasonable, but Spareroom.co.uk suggest the partner stays the same number of nights the lodger stays over at their place (which assumes the partner is in a position to have a regular overnight guest).
Can I have a relative “rent a room”?
When the landlord and tenant or lodger are related, if you claim housing benefit, local housing allowance or the HB or LHA element under universal credit, your claim may be affected, unless your relative is unable to afford your rent. Other benefits would only be affected if the person was married to you or living with you as a married or civil partner.
My lodger is frequently away, is he still liable to pay the full-rate?
The assumption is still that the room is let full time – unless the lodger and landlord have agreed otherwise (typically a midweek let where the landlord gets full use of the room when the lodger isn’t in occupation on weekends and holidays and the lodger doesn’t pay rent for those days).
Generally, the lodger is liable for paying full rent while he is away, unless you can get his agreement that you can use his room while he’s gone (you could let it short term to another lodger). However, make sure it’s put clearly in writing (email or even text will do, provided you get a response with his clear agreement) and you agree on dates, or at the very least get a cast iron commitment from your lodger as to a minimum notice period he will give you when he wants to return.
If you do let his room to a temporary lodger while he’s away, get that person to sign a lodger agreement that clearly sets out a time period with 1 week’s notice in case your main lodger wants to return. Also, even though this would only be a temporary lodger, it’s crucial you that you run a tenant reference on them, if only to ensure you don’t get someone who refuses to move out after the main lodger wants to return!
Note: Many of the FAQ’s have been answered by the brilliant lodger expert Mandy from Lodger Website (there’s a lot more information on lodging there, highly recommended) in the comments section below. She’s always giving sound advice and willing to help.
Any information provided is not legal advice. I will always recommend you seek legal or professional advice on any legal matters!
Disclaimer: I'm just a landlord blogger; I'm 100% not qualified to give legal or financial advice. I'm a doofus. Any information I share is my unqualified opinion, and should never be construed as professional legal or financial advice. You should definitely get advice from a qualified professional for any legal or financial matters. For more information, please read my full disclaimer.