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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!
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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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