Renting a room in your home out to a lodger is a great way to earn extra income and also provide you with extra security – since they may be home when you are out. For people who would otherwise live alone, a lodger can be a good companion and can help with the bills too.
With demand from students, young people leaving home for the first time, contractors and transient employees, the ‘tenant’ pool of possible lodgers is pretty healthy. In most areas – particularly near city centres, universities and hospitals – there is plenty of demand for lodging.
From the lodger’s point of view, renting a room in someone else’s house is a less formal and more flexible arrangement than renting a property outright – they may like feeling ‘part of the family’ and similarly enjoy the company. It is also cheaper and maybe more suitable to someone who doesn’t want to stay at the property all the time.
The Government encourages the idea of households taking in a lodger and offer tax incentives for those that do under the ’rent a Room’ scheme. There are, however, some rules, which you must adhere to.
- Firstly, you can only rent to a maximum of two lodgers at the same time. If you take in three, then you will fall into the category of an HMO (House of Multiple Occupation) and with that, comes lots more rules and regulations.
- The room you let must be in your primary residence, i.e. where you live most of the year – and the room(s) need to be offered on a furnished basis. Any furniture and furnishings you provide for your lodger should meet current safety standards.
- You need to share your kitchen and bathroom with the lodger. If they have a self-contained dwelling then this falls outside the Rent a Room scheme.
- If you are a tenant yourself, you may still be able to sub-let a room but you will need written permission from your own landlord.
- A lodger has a “license to occupy“, not a full tenancy so they don’t have ‘Security of Tenure’. Whilst a full Tenancy Agreement isn’t necessary, you should have a written agreement between you and your lodger(s), so that you both know where you stand on matters such as the amount of rent, the due date, deposit, notice required (usually one month) and ‘house rules’. A “license to occupy“, also offers you greater protection as a landlord – if the arrangement doesn’t work out, you can remove the lodger much more easily than under a full tenancy.
- Unlike full tenancies, there are no statutory rules covering lodgers – so you can set your own. Whatever these are, you should put them into the contract. You should try and strike a balance between offering your lodger independence and freedom with the needs of your own household. With a bit of ‘give and take’, there can be a harmonious arrangement, where everyone feels they are part of a home and still have enough privacy.
- The room you let must be for the lodger to live in, not to run a business from. The agreement that you and your lodger enter into should state this.
- You should notify your insurance company that you are taking in a lodger and make sure that your insurance policy fully covers you for any liability claims. It’s also prudent to ask your lodger to insure they’re own possessions as your household insurance may not cover them.
- Make sure your house is safe and meets the current safety laws, particularly regarding annual gas safety checks. This means that any gas boilers or appliances such as cookers need an annual gas check carried out by a qualified Gas Safe Registered Engineer and the issue of a safety certificate. As a landlord, you are legally responsible for this and that you retain copies of the gas safety certificates. The electrical system and appliances should also be safe, although there’s no requirements for an annual electrical safety check. Appliances which the lodger may use should also be checked regularly.
- Collect rent by standing order – this saves any awkwardness between you and your lodger if rent payments are late.
- You will not normally need planning permission and a lodger should not affect your council tax banding. However, it could affect the amount of Council Tax you are charged if you are in receipt of Council Tax Benefit, Council Tax Discount or Council Tax Exemption.
- Under the Government Rent a Room scheme you can earn up to £4250 per year (Just over £350 per month) tax-free.
- You can opt out of the Rent-a-room Scheme by informing the Inland Revenue that you wish to do so. Whether you choose to do so or not will depend on your circumstances although opting out isn’t common.
- If you share ownership of your home with others you would normally share the tax free relief. If there are two of you, you’d each get £2,125.
- If you provide meals to your lodger or do their laundry, it may also be possible to charge for these services, and have the amount paid in respect of them as part of the tax free scheme. You should check with the Inland Revenue.
Who makes the best 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. Letting a complete stranger into your home is a risk. Ideally, find lodgers through personal referral or recommendation.
- Alternatively, advertise for lodgers through local employers, particularly schools, colleges, universities, local authorities and hospitals.
- You need to assess lodgers as you would tenants and ideally have a formal Lodger Application Form and ask the applicant for references.
- 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.
- 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; students and hard working motivated people.
- 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 and interviews.
- You need to be tolerant, make some allowances and give your lodger space and freedom – after all it is their home as well. But stick to your rules: if things start to go wrong you need to bring the issues up immediately, don’t allow them to build up into huge resentments.
Property advice from Martin Roberts, presenter of ‘Homes under the Hammer’