Updated on 23 April 2012.
Exactly how much you can earn from letting out a room in your home will depend on the size of the room you have to rent out, the shared facilities you have available in the rest of your home, the location of your house and the area of the country in which you live.
You should be able to get an idea of the amount you can raise by looking for similar lets in the classified section of your local paper or on one of the many flatshare websites now available.
Under the government's Rent a Room scheme you can earn up to £4,250 each tax year, tax free by renting a furnished room in your family home. This roughly equates to a tax-free income of £354 a month or £81 a week.
If you receive more than £4,250 in rental income you have the option of either paying tax on anything over this amount, or paying tax on the profit you made from renting the room (e.g. rent minus any expenses).
If you charge for additional services such as laundry and cooked meals on top of rent you will not need to pay tax on the amount you receive providing the total (rent plus charges for additional services) is less than £4,250 each tax year. However, you will need to pay tax on anything earned over £4,250, even if rental income on its own comes to less than this.
When searching for a lodger it's usually best to start locally. Word of mouth is always a good option, however if you're unable to find someone suitable then it can be a good idea to post on the notice board of a local college/hospital/other large company so that you find someone who you can establish already has links within the area. Ads in your local paper or corner store are another option.
If a local search for a lodger fails then don't despair, there are now seemingly hundreds of websites designed to hook you up with your perfect tenant. Gumtree, Houseladder.co.uk, Spare-Room.co.uk, EasyRoomMate.com are just a few to try.
It's vital that you feel completely comfortable with anyone you share your home with so making a few background checks before you let them move in is a must. Things to ask for include:
If your prospective tenant is unable to provide all of the above without good reason you should be wary about letting them into your home.
You should also 'interview' your potential lodger to ensure that you get on and that your lifestyles and habits will be well suited to sharing the same living space. Questions to ask include:
Once you have found a lodger that you feel comfortable with it's a good idea to draw up an agreement that sets out what you both should expect from the arrangement. Details to include are:
It is customary to ask for a month's rent up front plus the equivalent of a month's rent as a returnable deposit in case of any damage to your possessions or property.
It's usually best to ask your lodger to set up a direct debit for their rent as this will help to give you more reassurance that they will pay the full amount owed on time.
Firstly you'll need to consider whether you'll be happy sharing your home with a stranger. Although the idea of earning extra cash without doing any work is hugely appealing you need to be realistic about the way you like to live. If you can't bear the thought of someone else using your home as their own it's unlikely that taking on a lodger is the right way for you to boost your finances.
Next you'll need to consult the terms and conditions of your mortgage to find out whether you need to notify your provider about your intentions to take on a lodger. It can be a good idea to inform them regardless of what your terms and conditions say, if only to cover your back.
You will also need to tell your home insurance provider that you will be letting a room in your home. This is likely to increase your premium (although it can help if your lodger takes out their own contents insurance), however it will be worthwhile to ensure that any claims you need to make as a result of having a lodger or otherwise are accepted as valid.
If you're currently living alone you should contact your local council to find out whether taking on a lodger affects your 'Single Person Occupancy' council tax status.
It's also vital that your home is 'safe' for any potential lodger to live in. Fit, and regularly check smoke and carbon monoxide alarms, ensure that all of your gas and electricity appliances are in good working order (you should have your gas appliances checked annually by a Corgi registered plumber) and that all other areas and belongings in your home can be considered safe and secure.
If you're unhappy with the arrangement you have every right to ask your lodger to leave at any time providing you give them a 'reasonable notice period'. Knowing this can be reassuring if you're letting a room in your home for the first time.
Written by Hannah at money.co.uk
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