Taking in Lodgers
- Taking in Lodgers is a good way to earn extra income, sometimes tax free.
- Taking in lodgers is an excellent way to help first time buyers afford to buy a property.
- There is plenty of demand for lodging in most areas – see below about how you can attract lodgers.
- Lodgers can provide you with extra security – if you are away, someone is looking after the property – and lodgers can become good companions for people who live alone.
- There are no statutory rules governing lodgers, unlike tenancies, so you make your own rules in the form of a contract between you and your lodger. The lodger has a “license to occupy”, not a full tenancy, so it is much easier to remove the lodger if he or she proves unsuitable.
- You need to be cautious about letting strangers into your home – be disciplined in the way you screen your lodgers – see below.
- It’s a very good idea to have a written agreement, so that you both know where you stand: rent, deposit, notices required, payment method, payment dates, house rules.
- Collect rent by standing order – this saves causing friction between you and your lodger if rent payments are late.
- There’s got to be a bit of give and take because sharing a house can cause friction if both parties are not prepared to respect the other’s space.
Earning Income and Paying Tax
Taking in a lodger is an excellent way of earning extra income helping to pay your bills if you have large commitments.
HMRC allow you to earn up to £7500 per year (£625 per month) tax-free through the Rent-a-Room scheme -see Taxation
Many thousands of households throughout the country earn extra income in this way. If you live near a college, university or large employers there’s nearly always demand for lodging from students and staff.
With house prices reaching record levels, taking in lodgers may be one strategy which can help first-time buyers get on the property ladder.
The extra income from one or more lodgers is a good way to help finance a house purchase, but make sure you are in an area where there is demand for lodging. Remember, 2 is the maximum number of lodgers you can have in a private house (providing you have the rooms) before your house becomes an HMO (House in Multiple Occupation).
With 3 or more lodgers the HMO regulations bring in expensive extra safety requirements, which must be complied with. Also, if your house is on 3 levels you are likely to become a licensable HMO, which brings in extra rules and regulations and an annual fee.
These days, with more and more demand for single accommodation, students, temporary and transient employees and young people leaving home for the first time, demand from would-be lodgers is not usually a problem.
Notice to Quit
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. Your lodger agreement should specify the amount of notice required (1 month when rent is paid monthly, or 28 days when paid weekly) and this should be given in writing.
What you need to do before you take a lodger
To avoid creating full tenancies or becoming entangled with HMO regulations and to qualify for the Rent-a-Room scheme, you must meet certain requirements:
1 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!
2 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! You lodger agreement should give you the power to enter and clean the lodger’s room, so that exclusive possession of any part of the property is avoided.
3 The room you let must be for the lodger to live in, not to run a business from – you agreement will mention this.
4 If you are a tenant yourself you will need permission from your own landlord before you take a lodger – get it in writing.
5 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 – your household insurance may not cover the lodger’s possessions. Make sure that your insurers have been informed in writing that you are taking in a lodger or lodgers, and that your insurance policy fully covers you for any liability claims. With no-win no-fee litigation now common, a claim against you for an accident could be astronomical.
6 You need to inform your mortgage lender, though it’s unlikely they will have any objections.
7 You must not have more than 2 lodgers in a private house, unless you are prepared for the house to become an HMO.
8 You need to make sure your house is safe and meets the current safety laws, particularly regarding annual gas safety checks – see below.
Lodgers and Council Tax – who is liable for the Council Tax?
You will not normally need planning permission and a lodger should not affect your council tax banding. However, it could affect the amount charged in several ways depending on whether the landlord is in receipt of either of Council Tax Benefit, Council Tax Discount or Council Tax Exemption.
Whilst council tax is “registered to the property” the liability depends on who is the occupier for the purposes of council tax.
A landlord who lives in the house would be liable and should collect a portion of the liability from the lodger or each lodger.
In the case of tenants: if the landlord lives in a shared building (except purpose build blocks of flats) where there is more than one tenant occupying flats which are individually assessed for council tax, then the tenants MAY be liable directly to the local authority.
A tenant who occupies a house or flat as an exclusive tenancy will be liable to pay the Council Tax direct to the council, and the landlord would only have liability if the house has been empty and ceased to attract a nil charge.
There are exemptions for students and persons under 18, discounts for single occupancy etc. The deciding factor as to whom is liable for CT is laid down in law and the definitive answer should and must come from the local authority for the area.
Health and Safety
Common sense tells you that you owe a duty of care to your lodger with regard to health & safety, and this is a common law duty. Your property therefore needs to comply with standard letting safety requirements.
Annual gas safety checks are required, which means any gas boilers or appliances such as cookers need an annual gas check and safety certificate. If you are a landlord letting a property equipped with gas appliances you need to understand and comply with the law relating to gas safety.
You need to have a gas safety check every year. A Gas Safe Registered Engineer must carry out the safety check in your properties in Great Britain and the Isle of Man. As a landlord, you are legally responsible for making sure that a Gas Safe Registered Engineer checks the gas appliances in your rental properties every 12 months and gives you copies of the gas safety certificates.
Any furniture and furnishings you provide for your lodger should meet current safety standards.
The electrical system and appliances should be safe, so although there’s no requirements for a an annual electrical safety check, you should have the system checked around every 5 to 10 years. Appliances which the lodger may use should also be checked regularly.
Screening your Lodgers.
You obviously need to be very careful who you take in as a lodger, as they will in effect become part of the family. We all tend to be too trusting of people we don’t know – letting a complete stranger into your home is a risk. If you want to see the worst that can happen watch the film “Pacific Heights”.
You need to screen lodgers as you would tenants, by having a formal Lodger Application Form and taking up the same kinds of references and checks you would do with a tenant etc.
Given the risks these days with fraud, debts, identity theft etc, it is most advisable to verify the lodger very thoroughly. You should ALWAYS carry out credit checks and referencing on prospective lodgers, just as you would a tenant – no exceptions, unless you know they are genuine or they come recommended from a reliable source.
The formal Lodger Agreement
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.
You should always have a formal agreement - House & Flat Share (Lodgers) – which sets out house rules and notice periods etc. Usually one-month’s notice on either side will be considered reasonable and will suffice.
It’s a very good idea to have an information pack which also includes a set of house rules which you expect your lodger to observe. The information pack can include local information, shopping, transport, entertainment etc, plus safety information for emergencies – what to do in case of fire, escape routes, door keys, stop taps and isolator switches etc, and instructions about how to operate appliances.
Do not be tempted to take in a lodger without:
If you don’t do these things, you could live to regret it!
If you have any questions about any of the issues here, post your question to the LandlordZONE® Forums – these are the busiest Rental Property Forums in the UK – you will have an answer in no time at all.
©LandlordZONE All Rights Reserved – never rely totally on these general guidelines which apply primarily to England and Wales. They are not definitive statements of the law. Before taking action or not, always do your own research and/or seek professional advice with the full facts of your case and all documents to hand.©LandlordZONE® – legal content applies to England and is not a definitive statement of the law, always seek professional advice. If you have questions on these issues go to the LandlordZONE® Forums