Tax
One of the nice things about taking in a lodger is that you can earn up to £7,500 (previously £4,250) tax-free under the government’s Rent a room scheme.
The main downside is that some allowances, such as the Landlord’s Energy Saving Allowance (under which landlords can claim back the costs of buying and installing energy-saving items), cannot be used for the same period. This is likely to only affect larger landlords though. Most people renting out a room will just have their tax deducted by their employers under the PAYE scheme.
It is still important though, that you keep proper records showing how much rent you have been paid, and receipts for all money spent. For example decorating, furniture, any cleaning expenses etc. You never know when the tax man will call, and it is best to be ready. Keep a record of ALL income and expenses.
If your financial affairs are likely to be complex, for example, if you have several lodgers, and have done work on the rooms which you think will entitle you to an allowance, it is best to take professional advice from an accountant.
Note: you will find >> more information on the Rent a Room scheme here.
Council Tax
If you live on your own, note that taking in a lodger will affect the amount of Council Tax you pay, if you receive a single occupancy discount. This is because, if your lodger is living with you as his main home, you may no longer be entitled to this discount, although not if your lodger is a full-time student, as students are exempt.
For more information speak to someone at the office dealing with Council Tax at your Local Authority, or >> there is a useful online guide here.
If I had someone who lives abroad stay with me on a regular basis (e.g. 4-5 days per month) would that affect my council tax?
If you mean, would it affect a single person discount, I suppose it would depend on whether they were counted as a resident or just a visitor.
Probably the best thing to do is to ask someone at your local authority Council Tax office. Make a note of your conversation and try to get their advice in writing.
I have found out from my local council tax office that I would not lose the discount if my lodger took the room on a Monday to Fri basis and had a main address elsewhere. The lodger would have to provide evidence that he/she was paying council tax at their home address.
Hi Katherine, many thanks for that.
Can I get clarification? Is the Rent a room scheme available to anyone? Is it affected by your current salary? Do you have tax returns each year for rent and associated costs? If you are slightly over the allowed amount but have costs to conteract it, do you again owe no tax??
I am not an accountanat and do not give financial or tax advice here. However so far as I am aware the rent a room scheme is available to anyone in the UK.
Thanks for the article – if it can be updated the “there is a useful online guide here” link is no longer pointing to the right place, hope the page still exists somewhere.
@Robin Many thanks for pointing that out – I have replaced the link with the relevant page on the Direct.gov site