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Residential Landlords and the Rent a Room Scheme

Posted 01/08/2019

If a homeowner rents out a room in their main home to a tenant or lodger, they will be required to complete a self-assessment tax return and may have to pay additional income tax on the rental profits made from the tenancy. If there are two partners renting out the room the income is shared between them equally, and each must prepare a tax return. Before agreeing a tenancy it is ideal for a homeowner to ask for references on the potential tenants and lodgers and to follow up on these, and to be fully aware of the guidelines on letting out a room in a main home.

There are two tenancy types that a tenant or lodger can fall under and the deciding factor is whether the tenant/lodger shares a bathroom, kitchen or lounge with any of the family members living in the house or not. If one of the three areas are shared the tenancy type is ‘excluded occupier’, and if the lodger does not share any room with the family they are an ‘occupier with basic rights’. In each case, a tenancy length may be agreed for a set number of weeks, months or years. If no length is agreed, the tenancy period will run indefinitely. The set rent the tenant or lodger pays can be paid weekly or monthly; a rent book should be provided if the payments are made weekly. In some cases having a tenant may affect the council tax, and the council must be informed of such changes, such as an effect made to the single persons home discount. If the homeowner receives less than £7,500 in rental income from the tenant or lodger (£3,750 each if the landlords are partners sharing the income) the landlord can opt in to the Rent a Room Scheme. This gives the landlord tax exemption for the rent received in that tax year. The room let out must be fully furnished, within the landlord’s main home and cannot be used as an office base for work by the tenant to meet the criteria to join the scheme. If the criteria is not met, or the rental income is more than the £7,500 threshold, the actual income and expenses must be recorded on the tax return.

An excluded occupier does not require a written notice of eviction but the landlord must inform them of the tenancy end with enough time, usually based on the frequency of rent payments; a week before if the tenant pays weekly or a month notice if rent is paid monthly etc. An occupier with basic rights does require a written ‘Notice to Quit’ 4 weeks before the tenancy end date. If an occupier with basic rights refuses to leave a court order will be required to evict the tenant or lodger.If rooms within the main home are let out to more than 2 people this becomes a House in Multiple Occupation, and extra requirements and standards become applicable.

Tags: personal tax, self assessment tax, landlords, renting a property, rental income

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