RESIDENT LANDLORD: You become a resident landlord if you rent out part of a property of your only, or main, home.
As a resident landlord you would have certain rights and responsibilities, including.
- Keeping the property safe and in good repair.
- The tenant or lodger loses the right to challenge the agreed rent.
- Renting out a room can earn you £7,500 per year tax-free.
- You would be able to end a letting with less notice than if you were renting out a whole property.
Note: Ask for references from potential lodgers or tenants. Follow them up before signing any rental agreement. You can read a good practice guide for landlords who are living in the same property as their tenants.
Rent a Room Scheme 2022
The Rent a Room Scheme lets you rent out as much of your home as you want. Letting out any furnished home accommodation can earn up to a threshold of £7,500 per year tax-free. Sharing rental income with your partner (or anyone else) halves the upper threshold.
How the UK Rent a Room Scheme Works
If you earn less than the threshold you do not need to do anything. That is because the tax exemption allowance is an automatic process. But, if you earn more than the 2016 threshold of £7,500 then you must complete a tax return.
Opting into Rent a Room scheme means you can claim any tax-free allowance on your usual income tax return. If you choose not to opt into the scheme, you should record your income and expenses on the property pages of your tax return.
Rent a Room Scheme Eligibility Criteria
You qualify for opting into the Rent a Room scheme UK if:
- You are a resident landlord, even if you do not own your home.
- You operate a bed and breakfast or you run a guest house.
Note: Homes which got converted into separate flats do not qualify for the Rent a Room scheme. HMRC ‘HS223 Helpsheet‘ provides more details on the Rent-a-Room Scheme for a trader, owner occupier, or a tenant.
Lodger Tenancy Types
There are different ways to share your home with a lodger. As a rule it affects what type of tenancy your lodger will have. In turn, this also affects your lodger’s rights and how landlords can end the tenancy.
Lodger Excluded Occupier
Most likely, your lodger is an excluded occupier if:
- They live in your home.
- You (or a family member) share a living room, bathroom, or kitchen with them.
Landlords must give excluded occupiers a reasonable notice to end the letting. There is no need to go to court for evicting tenants with this type of tenancy.
Occupier with Basic Protection
Most likely, your lodger is an occupier with basic protection if:
- They live in your home.
- They do not share any of the living space with you or any of your family.
This type of tenancy agreement means you need a court order to evict them if they refuse to leave when you ask them.
Tenancy and Letting Length
There are two basic lengths of a let for a tenancy or a licence:
- Periodic: Runs indefinitely from one rental period to the next.
- Fixed Term: Usually lasts a set number of weeks, months, or years.
What happens if you do not make an agreement on the length of a room let. In this case it would become an automatic periodic let. But, licences can be open-ended for less formal arrangements. An example would renting out a room in your home to a friend on an as-and-when basis.
Rent, Utility Bills, and Taxes
Rent Charges
Even though you can charge what you want for rent, you and your tenant should agree the amount beforehand.
Landlords have rights to ask for a deposit and they can accept Housing Benefit payments for rent.
Note: Renting a room in your home means you must provide a rent book for all tenants who pay weekly.
Council Tax Responsibilities
Paying Council Tax is one of your responsibilities if you rent out a room. You can include part of the Council Tax cost in the rent that you charge.
In some cases, having a tenant may mean you can no longer get entitlement to a single person discount.
You must inform your local council if this happens.
Home Utility Bills
You can include a fee as part of the rent if you pay the utility bills for the entire house.
An alternative would be to install pre-paid meters.
Note: You cannot charge more than the amount you pay for gas and electricity (plus VAT). Reselling utility bill amounts can result in civil proceedings.
Income Tax
Receiving rental income means you may be liable for Income Tax.
There may be an exception after registering in the Rent a Room scheme. As a rule, you get charged Income Tax on any rental income after the deduction of business letting expenses. Examples include:
- Property Insurance
- House Maintenance and Repairs (not home improvements)
- Certain Utility Bills (e.g. gas and electricity)
Capital Gains Tax
You may have entitlement to Private Residence Relief and Letting Relief. But, in some cases you may need to pay Capital Gains Tax when you sell your property if you:
- Let all or some part a property.
- Take in more than one tenant at a time (or lodger).
Tenant Deposit Protection
There is no legal requirement for resident landlords to protect a tenant’s deposit with a TDP. But, there are several government-approved schemes you can use. Often, a local council will guarantee rent for a potential tenant who struggles to pay a deposit.
Note: Do you run a bed and breakfast service, provide meals or cleaning services for guests? If so, other taxes may be due. You should contact HM Revenue and Customs for further information.
Ending a Rent a Room Letting
End an Excluded Tenancy or Licence
It is an easy process to end the tenancy when a lodger has an excluded occupier agreement. In this case, the landlord only needs to give them a ‘reasonable notice‘ to quit the property.
As a rule, reasonable notice means the same length as a rental payment period. For example, that would mean a notice of one week if your lodger pays rent weekly. There is no need to give notice in writing in these cases.
After this period you can change the room locks. You can do this even if the lodger left some personal belongings inside the room. But, in most cases you must give back all tenant belongings left behind.
End a Non-excluded Tenancy or Licence
You must serve written ‘notice to quit‘ if your lodger is an occupier with basic protection. The full notice period depends on what type of tenancy or agreement is in place. As a rule, it is often four weeks or longer.
Note: This type of tenancy agreement means you need a court order to evict them if they refuse to leave when you ask.
If Your Lodger Ends the Tenancy
A lodger can choose to end the tenancy by giving notice to their landlord. But, they cannot end it during the fixed term of the tenancy. An exception would be if the agreement has a break clause.
The tenancy agreement (if there is one) determines the amount of notice that they need to give. Otherwise, 2 to 4 weeks is usual if they pay weekly and one month would be fair if they pay monthly.
Note: Landlords and tenants can end any tenancy at any time providing all parties agree to it.
Changing Home Ownership
It may not be necessary for your tenant to leave even if you stop living in your home. But, their tenancy agreement may need to change to reflect the fact that you no longer live there.
What happens if you sell your home? In this case if the new home owner plans to live in the property and act as a resident landlord, they need to:
- Give notice within 28 days to a tenant that they intend to live there.
- Move in to the home within six (6) months of the sale.
Existing tenants will have more tenancy law protection until the new owner moves in. That is because there is no resident landlord during this period. Their rights depend most on when they moved in to the home.
What happens if the resident landlord dies? The tenancy would usually continue as though you were still resident until another person takes ownership.
Rules for Houses in Multiple Occupation (HMO)
Letting a room to more than 2 people in your property could get classed as a House in Multiple Occupation. You often need a licence and there are extra safety requirements and standards for HMOs.