How to Find a Lodger & Rent Out a Room in Your House

by from money.co.uk, Last Updated: 11 November 2014

Find out how you could earn up to 4,250 a year tax free by taking in a lodger & how to make this money making opportunity work for you.

Keys And Blue Sky

How much can you earn by renting out a room?

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.

What are the tax implications of renting a room?

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.

How to find a lodger

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.

How to vet potential lodgers

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:

  • A personal reference - ideally from a previous landlord. You can ask for these in writing however it can be a good idea to phone and chat to the referee in person. This enables you to verify that they are indeed a real person and you may find that they will be more open and honest about your prospective lodger on the phone than they would be on paper.
     
  • A bank reference - this will help you to verify that your prospective lodger is who they say they are and that they have the means to pay you.
     
  • An employer reference - again this will help you to verify both who they are and their ability to pay.

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:

  • Why are they looking for a room?
  • What are their hobbies, likes and dislikes?
  • How much time they will be spending in your house
  • What they do for work and what their working hours are
  • How they spend their evenings and weekends
  • Whether they want their meals prepared
  • Whether they are clean and tidy
  • Whether they have any special requirements

How to protect your home

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:

  • How much rent they will be expected to pay
  • When the rent is due
  • When you will review the rent
  • How much notice you should both give to end the agreement (a month is the norm)
  • How long the initial let period will be (e.g. 6 months)
  • Any services you will provide (such as cooking or washing)
  • How you will share the household bills
  • Any house rules that they should adhere to

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.

What else do you need to consider?

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.

What if it doesn't work out?

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.

Responses

add your response here

My lodger is moving out after only three weeks. She paid no deposit, but did pay one month;s rent in advance. Do I owe her a week's rent? Thank you.

by janeandmoney, 9 Aug 2012

Did you draw up a contract before she moved in janeandmoney?

by Hannah from money.co.uk, 9 Aug 2012
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