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 you can earn up to £7,500 per year in rental income without paying tax on that income. That’s up to £625 per month. This is halved if you share the income with your partner or someone else.
As you might expect, there are some things to think about to make sure you qualify.
- It must be furnished accommodation in your only or main home.
- You don’t have to be a homeowner to make use of the scheme. If you’re renting you can also lease out a room to a lodger, as long as your own lease allows you to do so.
- The room must be part of the home, not in 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.
Is it as simple as that?
Pretty much, if you don’t normally fill out a tax return and the rental income is below £7,500 you don’t have to do anything, the tax exemption is automatic. If the amount you earn is above this amount you’ll need to complete a tax return.
Under the ‘Rent a Room’ scheme you cannot claim any expenses related to the letting. This means if you have to spend money repairing wear and tear in the property or need to replace a broken boiler, you won’t be able to deduct any of that expense against income.
You should bear in mind that your home insurance premiums may go up and you will need to ensure that you comply with any health and safety requirements.
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.
Let your home insurance company know if you plan to take on a lodger as this is likely to affect your policy and coverage. Your lodger needs to know that their possessions aren’t covered by your contents insurance.
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.
Alternatively, HUB Financial Solutions - part of the Just Group - offers an equity release advice service that could help you decide if equity release is right for you.