If you’ve got a spare room, you may be affected by ‘Bedroom Tax’ and looking for an option that allows you to stay in your home. Getting a lodger in could be a great way of solving this – and you’ll even make some extra income in the process. As of October 2013, social housing tenants have been able to rent out their spare room, although some people may not be eligible. We’ve put together some advice on what you need to consider and how to find out whether this is an option for you…
The Rent-A-Room Scheme allows tenants to earn up to £7,500 tax free by renting out an empty room in their house. If this income is shared with a partner, that amount is halved. To be able to claim the £7,500 tax free, you will need to earn less than £7,500 per year and if you earn more, you will need to fill out a tax return.
It’s very important to note that you have to be living in your home full-time. No social housing tenant is allowed to sublet their entire property.
First, you’ll need to contact your landlord to be certain what their rules are around renting out a spare room.
Then, find out what kind of tenancy you have:
- If you are on an Introductory Tenancy of 12 months or less you will not be able to rent out a spare room in your home
- If you have a Secure Tenancy and your landlord agrees that you can be part of the scheme, you will be able to rent out your spare room
- If you have a Flexible Tenancy of 2-5 years and your landlord agrees that you can be part of the scheme, then you are also eligible to rent out a spare room.
- Those with a Joint Tenancy, such as married couples will need to have held that tenancy for at least 12 months and have the agreement of their landlord to rent out a spare room
In Scotland the rules differ. If you have a Secure Tenancy and you want to sub-let a room, you would need to get written approval from your housing provider. In your application you would have to tell them who the possible new tenant is, the rent they would be paying and their move in date.
Once you’ve checked that you’re allowed to rent your spare room, there are some more things to think about…
If you are on Housing Benefit
The first £20 of income that you get from your lodger won’t be counted as income and will not affect your Housing Benefit. Anything above this will count as income. For example, if the rent you charge your lodger is £50 per week, only £30 of it will be thought of as income and this £30 might then affect the amount you get in Housing Benefit.
The good news is that if the room you decide to rent is your only spare room, then you will now avoid ‘Bedroom Tax’. But if you have other spare rooms that you are not renting, you will have to pay ‘Bedroom Tax’ on those rooms.
If you are on Universal Credit, check with your landlord first.
Any rent you get from a lodger up to the tax-free allowance of £7,500 with the Rent-a-Room Scheme, won’t be counted as income and won’t affect your Universal Credit payments. So, it’s a great way to give your income a boost!
However, if you’re renting a spare room and are on Universal Credit, you will still have to pay ‘Bedroom Tax’.
If you are living alone
Some councils allow one-person households to claim a 25% discount on Council Tax. If you take a lodger in, you will have to let the council know and you won’t be able to get this discount anymore.
Make sure the person you choose is the right person
Your landlord will not be responsible if something goes wrong with a lodger. Be safe - meet up with the person a few times if they are a stranger and get to know them – especially if you are living with your children.
When you think you’ve found the right person that will fit into your home, ask them to provide two references. One might be from someone they have previously lived with and another could be an employer.
Get a signed agreement in writing
Make sure both of you are clear about what is expected in the home, such as behaviour, privacy, having visitors or cleaning - as well as payment of rent and household bills.
To find out more about The Rent-A-Room scheme here is a help sheet from UK.GOV.