How to take in a lodger if you have a spare room to rent
Have your kids moved out? Are you feeling a bit lonely living alone? Do you just need some spare cash? If you've recently decided you have a spare room to rent in your home, taking in a lodger and establishing a lodger agreement could be the perfect way for you to earn extra money. Not only will you receive rent payments, but you could also be eligible for the rent a room scheme, helping you keep more of the money you earn.
Before finding a lodger
If you have a spare room to rent, there are a few things you need to find out and decide before you can start looking for a lodger.
- Find out if you are allowed to rent out the room If you are a tenant or a homeowner with a mortgage, you will need to check with your landlord or lender respectively, to see if you're allowed to rent out your spare room.
- Find out if your insurance will cover a lodger
It’s best to find out beforehand if your insurance will cover a new tenant so you can inform prospective tenants that they will need to find their own insurance and to make sure that everyone will be covered.
- Find out if it will affect your council tax If you have previously been living alone (only paying single occupancy council tax - link) or only with those not considered to be adults, you’ll no longer be eligible for the discount. Read more about council tax in our article here.
- Decide the terms you want to be in the lodger agreement Decide beforehand what you want the terms of the lodger agreement to be so that both you and the lodger know the basic terms and conditions. It is also advisable to include what is required to terminate the agreement.
- Decide how much rent you want to charge If you over charge, you’re unlikely to find a lodger, but if you charge too little, you could lose out on money. Why not check on Roomlala to find out how much people are charging for rooms in your area?
- Decide if you want to opt in or out of the Rent a Room scheme
The Rent a Room Scheme
The Rent a Room scheme was introduced by the government in 2014 and allows those with a spare room to rent (resident landlords) to earn up to £7500 if they are the sole resident landlord, or £3750 for joint landlords, a year tax-free by renting out a spare room in their home. The scheme is available for both homeowners and tenants whose lease allows them to rent out a spare room in the property. Those running a guest house or bed and breakfast are eligible for the scheme as well.
If the rent you earn from your lodger per year is less than £7500, you don’t need to do anything and the tax exemption will automatically be applied. However, if you earn more than £7500, you will need to complete a tax return where you can then opt into the scheme.
If you opt into the Rent a Room scheme, you will only be taxed on the amount you earn over £7500 (or above £3750 if there are two resident landlords in the property). If you opt out of the scheme, you can deduct any expenses the profit you earn from your lodger and only pay tax on the remaining amount.
You can decide for yourself if you want to earn the £7500 tax-free or claim the tax back on expenses. You can change your mind each year as long as you let HMRC know when completing your tax return.
You can find out more about the Room to Rent scheme in our article here
Evicting a lodger
Your lodger is considered an ‘excluded occupier’ if they share a living space with you or your family, for example, a kitchen or bathroom. Under UK law, excluded occupiers have fewer rights than normal tenants, meaning you only have to give them ‘reasonable notice’ to leave. However, if you have a written lodger agreement which states how much notice is required, you must honour this. Unlike normal tenancies, notice to leave can be written or given verbally, unless the agreement states it must be given in writing.
If the lodger refuses to leave after the notice period, you can take them to court to obtain a court order, or you can change the locks while they are out. If you choose the latter, you must ensure their possessions are looked after and arrange a time for them to come to collect them.
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