Letting A Room In Your Own Home

One potentially useful way for homeowners to exploit the hidden potential in their own property is to rent a room out in their own home. If you can overcome the issues associated with sharing your private residence, this has numerous benefits and is not subject to same level of regulation as other forms of rental.

Lodgers' Agreements

People renting a room in private residences are usually treated by the law as lodgers or licensees, so they do not have the same degree of legal protection as a normal residential tenant. In particular the lodger does not usually have a fixed six month period before their agreement can be ended and the lodger does not have the same protection from eviction as a residential tenant and can be evicted once they have had suitable notice. Although not essential, the home owner should still have a formal agreement drawn up. These agreements usually stipulate a notice period of one month and contain other useful terms to make sure the arrangement gets off to a proper start. There are various professionally drafted lodgers' agreements available online.

Tax Treatment

Renting a room in your property also has certain tax benefits. Under the Rent a Room Scheme the landlord can usually receive an additional £7,500 tax-free allowance. This is halved if you share the income with your partner or someone else.

However, it is worth checking that renting rooms out does not create a liability for Capital Gains Tax once you come to sell your home.

Houses in Multiple Occupation

It is possible for homes to be treated as HMOs (see previous page) if there is a self contained element, or if there are more than two lodgers.

Other Points to Remember

Home owners should remember some other practical points:

  • You will need to notify your lender and insurer
  • If a lodger is claiming benefits you may need to seek advice from the Council as to how these are obtained.
  • Home owners will still have to have annual gas safety inspections and make sure furnishings comply with the latest safety codes.

See also: Rental Search, Letting Agent Directory