Lodgers and Rent-a-Room

Taking in a lodger is an excellent way of earning extra income helping to pay your bills if you have large commitments. See also Taking in Lodgers - Questions & Answers

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 - 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 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.

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 a problem.

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 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.

However, to avoid creating full tenancies 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! 

3  The room you let must be for the lodger to live in, not to run a business from.

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.

6  You need to inform your mortgage lender, though it's unlikely they will have any objections.

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.

You will not need to worry about health and safety, environmental health and gas checks, as you would with a full tenant, though common sense tells you that you do owe a duty of care for your lodger's health & safety.

Any furniture you provide for your lodger should meet current safety standards.

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 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 searches 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.

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 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 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:

Informing you mortgage and insurance providers Informing you landlord if you are a leaseholder or tenant (check your lease or tenancy agreement) Informing your local authority if you are on means tested benefits - the extra income could affect your benefits. Making sure your facilities are right to attract decent lodgers. A Lodger Agreement: For a Room in a Furnished House or Flat with a Resident Owner A set of house rules - smoking, pets, visitors etc. A completed Lodger Application Form Careful screening/verifying including identity checks Setting up a Banker's Standing Order for rent payments. Telling your lodger to insure his/her possessions and that if they have their own TV in their room, it will need a license. Taking one month's rent in advance on entry and a deposit if you decide to do so - usually about one month's rent again. Informing the Inland Revenue of your extra income in your tax return - you are allowed to earn a basic amount tax free under the Rent a Room Scheme. If you don't do these things, you could live to regret it!

Good lodgers can become great friends and companions, they can even become free house sitters, child and pet minders. But how do you attract a good lodger?

- Make sure your house is clean, stylish and inviting inside and out and that the facilities you provide are adequate for your lodger's needs including: cooking, washing, drying, entertainment and privacy when required. A double bed with duvet and perhaps hypo allergic pillows and TV in the room, shower and bath on suite is ideal but nearby if not, would be expected these days.

- Try to make contacts through word of mouth and recommendations through local people - put the word out that you are looking for someone rather than an ad in the local shops or papers.

- If this fails try local employers, particularly schools, colleges, universities, local authorities and hospitals - some of these will have accommodation people you can talk to and you might even use their notice boards or Intranets, with permission of course.

- Local shops and papers come last - but remember, you need to be particularly thorough with your screening process if you are dealing with strangers.

Benefits: If you or your lodger are claiming means tested benefits these could be affected by the lodging arrangement. By providing meals and including the cost in the rent the landlord can reduce the effect on their means tested benefits, but this could adversely affect the lodger's benefits. The calculation is complicated. Seek advice from the Council before offering a room to a lodger when you are on benefits.

Banker's Standing Order: Its a very good idea to collect rent through standing order payments. There are a lot of good reasons for this, but the main one here is that it prevents friction when rent is late, or worse, not paid at all.

Letting to a lodger will normally come under the rent-a-room scheme unless you opt-out by informing the Inland Revenue. In certain circumstances you may be better off opting out of the scheme, though this is less common. 

If you share ownership of your home with someone else or others, you may be able to share the tax free income or even increase the allowance.

It may also be possible to charge for services such as laundry and meals you provide, and have these incorporated into the tax free scheme. Check with the Inland Revenue.

Don't be tempted to take pity on down and outs or people going through martial break-ups or other sob stories: the best lodgers are people who have their lives together, hard working motivated people with a purpose in life.

Discrimination: bear in mind that discrimination laws apply when selecting your lodger as they do when selecting employees. It's so important to have a proper selection procedure, including application, referencing, identity checks, interviews - see our section on tenant screening for guidance here

You need to be tolerant, make some allowances and give your lodger space and freedom - after all it is their home now as well - but stick to your rules: if things start to go wrong you need to bring the issues up immediately, not allow them to build up into huge resentments.

For more information read Rosy Border's book and see Taking in Lodgers - Questions & Answers - taking in lodgers - answers to Frequently Asked Questions   

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