If you have a spare room in your house why not let it out and earn yourself thousands of pounds a year tax free? In this article, we describe how to rent a room in your house and how much you can earn tax-free when you do.
Can I rent a room in my house?
Yes, there are certain rules to the taxation of income you derive from letting a room in your home which you will find below but it is certainly possible to be a resident landlord. In law, a resident landlord is one who lives in the same building as the tenant. If your property is split into separate flats or dwellings and you live in one of these, this is not considered the same as renting a room in your only or main residence and comes under a different set of rules outlined under private renting.
Are the rights of resident tenants different to those of assured tenants?
Yes. As per the government website, government guidelines outline the following:
"Resident landlords have greater freedom to end an arrangement because it is acknowledged that, should the relationship break down between the landlord and the person he or she lets to, the landlord is more vulnerable in his or her own home. Non-resident tenants also have rights to challenge rent levels that resident tenants do not enjoy."
Do I need permission to let a room in my house?
Not if you own the property outright but if you have a mortgage or you own a long lease, you should write to your mortgage lender or the freeholder to seek permission to rent a room in the property. Not doing so could mean that you are in breach of your lender or freeholder's terms of engagement.
Will I have to pay tax on the rental income if I rent a room in my house?
One of the most interesting facts is that under the Government's 'rent a room' scheme letting income up to £7,500 per year is totally tax-free, providing the room offered is furnished.
How to prepare to rent a room in your house
It is best to start by outlining the rental agreement which can include:
- Room description - square footage, windows, ensuite
- Inventory of furnishings - detail all of the furniture and contents the tenant will be able to use
- Rules of residence - smoking permissions, parking facilities, access to outside areas such as a garden or patio, pets
- Amenities - broadband, television, phone services, laundry facilities, gym
It is sensible to point out what is included within the rental price and which services may carry an extra charge, depending on usage, to be clear on costs to potential tenants.
It is also wise to set out some ground rules to avoid any disputes with a future tenant including how shared spaces are to be used as well as what the tenant can expect from you. For example, some tenants may work from home and require quiet times in the day while others may work unsociable hours that could be disruptive to the landlord. It is best to be clear about what your tenant can reasonably expect before entering into a contract.
Will renting a room in my home affect my home insurance?
It may do, so you should inform your insurer of your intention to rent a room in your home and share the details of the rental so that your insurer can confirm whether your insurance will remain valid. There is a form of specific lodger insurance that not only provides cover against increased risks of damage, theft and accident but can also include protection against harm suffered by a lodger that they hold the landlord responsible for.
How to find someone to rent the room in your house
Finding a tenant or lodger has been made very simple by a number of companies that help you advertise your room to let. These include:
- roomgo - with 3.4 out of 5 stars on Trustpilot this site also checks each ad before it is posted helping landlords and tenants alike to be transparent
- SpareRoom - the site claims to have 2 million visitors a month and moderators who check ads for content
- Local estate agents - local estate agents may also list your room and share these on sites like Rightmove and Zoopla which are large market players that can help you find the right tenant for your vacant room too.
Vet your tenant
Obviously, letting a complete stranger into your home requires a high degree of trust but if you use a reputable agent that carries out comprehensive checks then it can be a great way to earn an additional income.