When you have a spare room in your home, instead of leaving it sitting empty or storing your old possessions, you could be using it to make some extra income. Renting out a spare room is an excellent way to improve your bank balance and offset some of the costs of running your home. If you are considering renting out a room to a lodger, then it is important to research the laws and regulations surrounding this as it is not just as simple as handing your spare keys over to your new roommate.
You will need to consider the tax implications, insurance requirements, council tax payments and many other points before you can let a lodger move into your home. This guide covers how to rent out your spare room, who you need to inform, and how to find a good lodger.
What is the Rent a Room scheme?
The government has launched the Rent a Room scheme to encourage those with larger houses to rent out their spare rooms to make some income. It is an optional scheme available to owner occupiers or tenants who want to let out furnished accommodation to a lodger.
The scheme allows you to earn up to £7,500 a year tax-free through rental income, or half of this if you are sharing the income with a partner in your home. If you do earn more than this threshold in rental income over the year, then you will be required to complete a tax return for anything above £7,500. Anyone who has a spare room to rent out can take advantage of the Rent a Room scheme.
If you are renting your home, then it is still possible to take advantage of the Rent a Room scheme and rent out a spare room in your home. However, you will need to get written permission from your landlord in order to avoid any disagreements.
What insurance do I need to rent out a spare room?
If you have a lodger moving into your home, then you must inform your home contents insurer to let them know of the change of circumstance. If you don’t let them know, then your insurance might be invalidated should you need to make a claim. You could be required to extend your insurance cover to include liability insurance, which would cover you if your lodger injured themselves in your property.
Your insurance company could increase the price of your cover, or even exclude any theft claims if there are no clear signs of a break-in at your property. Some insurance companies could even refuse you cover altogether, as they could consider having a lodger living in your home a security risk. There may be some requirements for the lodger you choose, such as they might have to be in full-time employment, not a student or not have any criminal convictions in order for the insurance company to cover you.
Before you choose a lodger, be sure to speak to your current insurance company to find out their requirements. If they refuse to cover you for having a lodger, then shop around for a company that will. There are also specialist landlord-lodger policies available that are designed just for those renting out rooms.
Who to inform when you are renting out a room?
As well as discussing with your insurance company, there are a few other people that you should inform before you move your lodger in. If you have a mortgage, you should inform your mortgage lender of your plans to rent a room. A lot of mortgages include a clause that requires you to seek permission from the lender before renting out any part of your property.
If you have a leasehold property, then you will need to check with your landlord and also the lease agreement which might include information on renting out a room. You will also need to inform your local authority, as it can affect your council tax if you previously lived alone.
If you take in a lodger that is only residing in the property part-time, for example between Monday and Friday, then your council tax may not need to change. However, your lodger will need to be paying council tax at a different primary residence.
Finding and choosing a tenant
Once you have got everything in order and are ready to take in a lodger, you can start advertising for a new lodger. Post about the spare room online and spread the word among your friends and colleagues. If you have found some potential tenants, then be sure to thoroughly vet them and carry out background checks. Ask them for references from employers or previous landlords, and always get a deposit from them for the room.
Be sure to chat with your potential lodger about their hobbies and interests. It is important that your lifestyles match, for example, if you get up early for work every day and they like to party until the early hours, then you might not make the best roommates.