Rent a Room Scheme

The Rent a Room scheme allows you to earn up to £7,500 a year tax-free by renting out a part of your home, as long as you also live there. If what you earn from renting out the room is less than £7,500, you don’t even need to declare it to HMRC. It’s completely exempt from tax and does not count towards your Personal Allowance.

If you make more than £7,500, you still have to file a Self Assessment tax return, but you can claim £7,500 as a flat tax-free allowance.

To be a live-in landlord, you must be using the property as your only and principal home throughout the duration of the letting.

How to be a live-in-landlord

• Property owners do not require permission to rent out part of it to lodger
• If you have an outstanding mortgage, you should seek permission from the mortgage lender
• A long-term leaseholder will need to consult the terms of the lease
• Secure council tenants can sublet part of their property, but only with the council’s permission
• Private tenants are not allowed to sublet unless the terms of their contract explicitly state it

Agree terms of a licence with your lodger and have these written and signed for reference.

Specify the basics, such as the length of the contract, when the rent is due and the notice period. The lodger’s licence can run on a month-to-month basis. It can go for a longer term with a break clause included. Decide whether to include the utilities as part of the rent or as a separate charge.

What are some discounts and benefits of being a live-in landlord?

If you were previously living alone and enjoyed a 25% discount on council tax, you will now have to inform the council that you have a lodger and begin to pay the full rate.

If your rental income over a 12-month period amounts to under £7,500, this is tax-free as part of the government’s Rent a Room Scheme.

Anything over this threshold will mean you have to file a Self Assessment tax return, but your tax bill can still be reduced by claiming property expenses.

Live-in landlords who claim the Rent a Room allowance cannot also claim expenses. You can decide for yourself which is more cost beneficial.

If the lodger claims housing benefits, these are paid directly to the lodger. If they cannot manage their finances or their rent is in arrears for a substantial length of time, the live-in landlord may request direct payment from the local authority.