In times of financial uncertainty, many homeowners look for ways to offset expenses and generate additional income. One such avenue is renting out a room in your own home, a decision that brings both opportunities and responsibilities. This guide aims to help you understand the nuances of the Rent a Room Scheme in the UK, ensuring you make informed decisions as a resident landlord.
Your Responsibilities as a Resident Landlord
Property Maintenance: You are responsible for keeping the property safe and in good repair. This includes regular maintenance and addressing any safety concerns promptly.
Rent Agreement: As a landlord, you set the rent, which cannot be challenged by the tenant or lodger once agreed upon. It’s crucial to establish a fair rent and have a clear agreement in place.
Tax-Free Earnings: Under the Rent a Room Scheme, you may be eligible to earn up to £7,500 per year tax-free. This provides a significant financial buffer, especially during tough economic times.
Notice Period: If you need to end a letting, you can often give less notice compared to renting out an entire property. This flexibility is a key advantage of the scheme.
Understanding the Rent a Room Scheme:
How It Works
Tax Exemption: If your earnings from renting out a room are less than £7,500 per year, you automatically qualify for tax exemption.
Opting In: If your earnings exceed this threshold, you need to complete a tax return and opt into the scheme to claim your allowance.
The scheme is open to resident landlords, regardless of home ownership. It applies to those running bed and breakfasts or guest houses. Note: The scheme is not applicable for homes converted into separate flats.
Lodger’s Tenancy Type
Excluded Occupier: If they share kitchen, bathroom, or living room with you, they are excluded occupiers. You need to give them ‘reasonable notice’ for eviction, which is typically the length of the rental payment period.
Occupier with Basic Protection: If they do not share living spaces with you, they fall under this category. Evicting these lodgers may require a court order.
Rent, Bills, and Tax
Setting Rent: Agree on the rent amount beforehand. You can also ask for a deposit and accept Housing Benefit as rent.
Council Tax and Utilities: You are responsible for Council Tax and utility bills. These costs can be included in the rent or managed separately.
Income Tax: Rental income is subject to Income Tax, with specific rules under the Rent a Room Scheme.
Capital Gains Tax: Applies under certain conditions, like letting out part of your home or hosting multiple tenants.
Ending a Letting
Excluded Tenancy: Give reasonable notice based on the rental payment period.
Non-Excluded Tenancy: Serve a written notice, typically requiring at least 4 weeks.
Change of Ownership
If you stop living in the home or sell it, the tenancy type may change, affecting the tenants’ rights.
Houses in Multiple Occupation (HMO)
If you let rooms to more than 2 people, your property may be classified as an HMO, which has additional safety and licensing requirements.
Renting out a room in your home can be a financially savvy move, especially in times of economic hardship. However, it’s important to be well-informed about your responsibilities, the legal implications, and the financial aspects of the Rent a Room Scheme. By doing so, you can ensure a beneficial arrangement for both you and your tenant.
For more detailed information, refer to the Rent a Room helpsheet and consult with a tax professional to understand how this scheme fits into your personal financial situation.
Find our more at https://www.gov.uk/rent-room-in-your-home/your-lodgers-tenancy-type