Letting a room
Getting someone to share your home can be rewarding in more ways than one – a lodger often provides welcome company, as well as help with the finances. And since much of the money you'd receive would be tax-free, it could be time for you to open your door to someone new.
Is renting out a room in my home a good idea?
It may be. If you’d like to make best use of the capital you’ve invested over the years, and don’t want to look at equity release, or downsizing to a smaller property – then it may be a very good idea to think about renting out a room.
Which rooms can I rent out?
Most lodgers will expect more than just a bedroom. Ideally, you’ll offer a separate bathroom too and use of a lounge and a kitchen – shared if necessary. In practice, many homes have en suite facilities.
Be careful if you’re offering ‘study’ space. As you’ll see below, to qualify for the 'Rent a Room' scheme you can’t let out space as an office. You should also think about your garden – and be clear about which spaces are available and when.
Where can I find a lodger?
Ask your family. Ask friends. If you have children who are students, ask them if they know anyone who’d like a room. It may be there’s someone quite close to you who’s looking for a room already.
Advertising locally is an option. Think about people who commute into town on a regular basis – they may only need a room during the week. Do bear in mind that an advert means you’ll be dealing with a total stranger. Be sensible and follow up on all references.
Consider asking for a member of your family to be present when meeting potential lodgers for the first time.
Will I have to pay tax on the income?
Thanks to the ‘Rent a Room’ scheme, the rental income you get may be tax free. You can charge up to £7,500 per year without paying tax on that income. That’s over £620 per month. As you might expect, there are some things to think about to make sure you qualify.
- It must be furnished accommodation in your own home. However, as long as you have permission to sub-let – there’s nothing to say you have to be a home owner.
- The room must be part of the home, not a separate building, and you must be actually living in the same property at the same time.
- The room must be let for residential purposes only, not as an office.
- You can charge more, but you need to declare any extra rent in your tax return as it may be subject to income tax.
Is it as simple as that?
Pretty much, but you can’t claim any expenses as being tax-deductible under this scheme. So, for example, if you spent £7,000 refurbishing a room and then charged £6,000 for it, you’ve made a loss. You can’t offset the expenses you’d incurred. There are other things to think about, too:
- Your home insurance premiums will probably go up.
- You must tell your mortgage company or landlord (who may object).
- You’re responsible for major repairs and for Health and Safety matters.
Is there anything else I should think about?
You may be sharing your home with a stranger – but that’s a person who also has rights, as a lodger. Ask for references and, again, this is a reminder that you should always follow them up. It’s standard practice to ask for at least one month’s rent in advance, but make it clear upfront who is responsible for what:
- How much the rent is, when it’s due and when it will be reviewed.
- Who pays for what – household bills, Council Tax etc. (Remember if you currently live alone and benefit from a 25% council tax reduction, this will be lost if you rent out a room).
- Which facilities are ‘off limits’.
- How much notice you expect.
If your home is still mortgaged, you will also need to speak to your mortgage lender as some impose restrictions on letting or renting property.
If renting, you should also check with your landlord as some don’t allow you to sub-let rented property. Finally you should also check with your household insurer, as you will need to be clear that any liability for theft or damage of property that you don't own in your home, won’t be covered under your current insurance and it will be the responsibility of the tenant to ensure they are adequately protected.
If in doubt, talk to a lettings agency and ask them to handle the paperwork for you. That way you can be confident of having robust agreements in place. For older students or commuters, your home may offer highly valued accommodation.