Overview
If you take in a lodger by letting out part of a property which is your only or main home, you become a resident landlord.
If so, you’ll have certain rights and responsibilities:
- you’re responsible for keeping the property safe and in good repair
- a tenant or lodger does not have the right to challenge the agreed rent
- you may be able to earn £7,500 per year tax-free (or £3,750 if you share the income with someone else) under the Rent a Room Scheme
- you can give less notice to end a letting than if you rented out the property as a whole
The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. The threshold is halved to £3,750 if you share the income with someone else.
Rent a Room and Universal Credit
You can let out as much of your home as you want, the income (up to £7500/annum) will not count as income for Universal Credit
Affect on Housing Benefit
If you get Housing Benefit (HB), the first £20 of weekly income from a sub-holder is ignored and won’t affect your benefit, anything above £20 will be treated as income and may affect you Housing Benefit
If you’re a working-age contract holder in social housing and you have one or more ‘spare’ bedrooms, you might be paying some money towards your rent already because your HB has been reduced. This is known as the ‘under-occupancy charge’, the ‘social sector size criteria reduction’, the ‘removal of the spare room subsidy’ or the ‘bedroom tax’.
If you sublet a room, you’ll be treated as needing a bedroom for the sub-holder for HB purposes. This means that your HB won’t be reduced because the bedroom is no longer ‘spare’, although the rent that you get from the sub-holder counts as income, as explained above.
Rent a Room and Income Tax
Income Tax is payable on rental income you receive.
If you’re not in the Rent a Room scheme, you’ll be charged Income Tax on any rental income you get after business letting expenses. Examples of business expenses include:
- insurance
- maintenance
- repairs (but not improvements)
- utility bills
If you’re in the Rent a Room Scheme, you’ll pay Income Tax differently.The tax exemption is automatic if you earn less than your threshold. Which means you do not need to do anything.
You must complete a tax return if you earn more than your threshold.
You can then opt into the scheme and claim your tax-free allowance. You do this on your tax return.
You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return.
Read the Rent a Room helpsheet for more detailed information on how to complete the form, and when it makes sense to opt out of the scheme.
Rent
You can charge what you want for rent but should agree the amount with your tenant beforehand. You can also ask for a deposit and you can accept Housing Benefit for rent.
You must provide a rent book for tenants who pay weekly.
Deposits
Resident landlords are not legally required to protect tenants’ deposit with one of the government-approved schemes.
Council Tax
You will be responsible for Council Tax and can include part of the cost in the rent you charge. You must tell your council if having a tenant means you’re no longer entitled to a single person discount.
If you’re unsure who should pay Council Tax, check with your local council.
Utility bills
If you pay the utility bills for the entire house, you can include a charge in the rent or install pre-paid meters.
You can only charge the amount you’ve paid for gas and electricity plus VAT or you could face civil proceedings. Read Ofgem’s rules on the resale of gas and electricity for more information.