Letting Your Home to a Lodger

Broadly, someone who lets from a ‘resident landlord’ does not have a right to challenge the level of rent that he or she has agreed to pay. They can be given less notice to leave if the landlord wants to end the letting.

You can arrange the letting in a way that suits you and the tenants but examples of the most common arrangements are as follows:
  • Non-excluded tenancy: house divided into self-contained flats, occupier lives in one and landlord in another
  • Excluded tenancy: ‘houseshare’ arrangement, where landlord lets room(s) in his or her home and shares lounge etc with the occupier; bedsit arrangements where landlord is not servicing rooms
  • Excluded licence: ‘lodgers’, where the arrangement includes cleaning the room; stay by a friend on a casual basis; room is let as a ‘roomshare’ with existing occupant
Taxation Issues

  • You get a 25% discount off your council tax bill if you are the only adult living in a property. This is often called 'single person' discount but will be lost when taking a lodger.
  • If you are letting furnished rooms in your home, you can receive up to £4,250 a year tax-free. This is known as the Rent a Room scheme. The principal point to bear in mind is that if you are in the Rent a Room scheme you can't claim any expenses relating to the letting.
  • To work out whether you will be better off joining the scheme or declaring all of your letting income and claiming expenses on your tax return you need to compare the following:

  • how much income you are left with after your expenses
  • the amount of your receipts (rent plus any income from laundry services, meals, etc) over £4,250 (2009-2010 tax year)
If you opt out of the scheme (or simply do nothing) you will pay income tax on the first amount. If you opt into the scheme you will pay tax on the second amount.

The expenses you can deduct from letting income (unless it's under the Rent a Room scheme) include:

* letting agent's fees
* legal fees for lets of a year or less, or for renewing a lease for less than 50 years
* accountant's fees
* buildings and contents insurance
* interest on property loans
* maintenance and repairs to the property (but not improvements)
* utility bills (like gas, water, electricity)
* rent, ground rent, service charges
* Council Tax
* services you pay for, like cleaning or gardening
* other direct costs of letting the property, like phone calls, stationery, advertising

Bear in mind that you can only claim expenses that are solely for running your property letting business. If the expense is only partly for running your business (or if you use the property yourself) then you may only be able to claim part of it.

You can't deduct 'capital' costs, like furniture or the property itself, personal expenses that aren't to do with your letting business, any loss you make when you sell the property. You may be able to claim some allowances instead for furniture and equipment provided with a furnished residential letting (excluding UK furnished holiday lettings) you can claim a 'wear and tear' allowance. The allowance is 10 per cent of the 'net rent' - this being the rent received less any costs you pay that a tenant would usually pay.

As an alternative to the wear and tear allowance, you can claim a 'renewals' allowance. This covers the cost of replacing furniture or equipment, including small items like cutlery. Whatever the type of letting, you can claim a capital allowance on the cost of things that you need for running your property letting business, like cleaning and gardening equipment. Check with the HMRC for details.

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