I have a freehold three bedroom house and am considering taking in a lodger for the first time. I have been reading the HMRC guidance on the Rent a Room scheme and have a couple of questions I would appreciate help with.
As I understand it, the scheme allows up to £7,500 per year in gross receipts from letting a furnished room in your main residence before any tax is payable. My question is whether this figure is per property or per taxpayer. In other words, if I let two rooms to two separate lodgers (unlikely but hypothetically), is the threshold still £7,500 in total, or £7,500 per room?
Secondly, I am unclear on the council tax position. Currently I receive a 25% single person discount. If a lodger moves in, does that discount automatically disappear? I assume it does, but the gov.uk guidance is surprisingly vague on whether a lodger counts as a “resident” for council tax purposes or not.
Finally, a more general question. Does a lodger arrangement require any kind of written agreement to be enforceable, or is it simply a licence by default? I would prefer something in writing but I want to understand the baseline legal position.
Any guidance appreciated.
Yes you lose the single person discount. A lodger counts as a resident for council tax purposes. Thats the bit most people dont think about when they do the sums on Rent a Room. The £7,500 is per property not per room.
@rb471956 that is helpful, thank you. I had not factored in losing the single person discount at all. Just to clarify, is it purely a question of residency (i.e. another adult living in the property) or does the lodger’s income or tenancy status affect the council tax position in any way? I ask because I had assumed a lodger under the Rent a Room scheme was somehow treated differently from a tenant, but perhaps that is wishful thinking.
One thing nobody ever mentions with lodgers.. check your home insurance policy BEFORE anyone moves in. Most standard home insurance policies have an exclusion or limitation clause if you have a paying lodger. Some will cover it, some wont, and some will charge an additional premium.
I had a friend in Durham who took in a lodger, had a kitchen fire six months later (the lodger left a chip pan on, obviously..), and the insurer refused the claim because he hadnt notified them. Total loss about £14k in damage. He was technically in breach of his policy terms.
Also worth getting a proper lodger agreement drawn up even if its not legally required. Citizens Advice have a template. It wont protect you like an AST would but its better than a handshake and a prayer..
Cheers!
Purely residency. Council tax doesnt care whether theyre a lodger, a tenant, or your cousin staying indefinitely. Another adult in the property means you lose the 25% discount. Rent a Room is an income tax relief, nothing to do with council tax. The two are completely separate regimes.
Worth adding to the insurance point that even policies which don’t have an outright exclusion for lodgers will usually require you to notify the insurer. Failure to disclose a lodger could technically void the policy if you needed to claim, regardless of whether the lodger had anything to do with the incident. I went through this with my own home insurer when I briefly considered a lodger a few years ago and was told my buildings and contents cover would need a rider adding at an additional premium of about £45 per year. Not a dealbreaker but the kind of thing you only find out about after something goes wrong if you don’t ask upfront. From recollection the FCA guidance on material changes to risk specifically includes changes in occupancy, so it is not just an insurer quirk.