Letting a room in your home to a lodger can be a good way to make extra money. However, you need to make sure that you've got permission to do this.
Are you allowed to sublet?
Check your tenancy agreement carefully. Most private tenancy agreements include a clause saying you have to get your landlord's permission in writing if you want to sublet a room. The landlord can refuse permission if he or she has good reasons to do this.
If you rent your home from a housing association or the Housing Executive, you can rent out a room to a lodger without getting your landlord's permission. If you're subletting a larger part of your home, you need to get permission. You'll only be allowed to do this if you are a secure tenant.
How will subletting change your benefits?
Moving a lodger or subtenant into your property counts as a change in circumstances. Any rent that you get from your lodger or subtenant will be counted as income when working out your entitlement to benefits. This means you'll need to let the Social Security Office know about this change if you're claiming any benefits. If you're claiming Housing Benefit you'll need to tell the Housing Executive about this change as well as telling the Social Security Office.
Do you have to pay tax on the rent you get from a lodger?
From April 2016 you can earn a maximum of £7,500 tax free in rent each year. If you charge your lodger more than this, you'll need to declare any income over this amount to HMRC and you'll have to pay tax on any rental earnings over the £7,500 mark.
What's the difference between a lodger and a subtenant?
A lodger rents a room in his or her landlord's home. A lodger is normally a "licensee"; this means the person has a license to live somewhere but isn't legally a tenant. A lodger can't stop the landlord from entering the room he or she is renting and can't restrict the landlord's access to any part of the property. You are probably a lodger if you live with your landlord and your rent includes a payment towards cooking or cleaning services.
A subtenant has "exclusive possession" of the room that he or she rents. This means that they rent their own, defined space in the house and can stop anyone else from entering that space.
A sub-tenant normally rents a room from a tenant of the property, rather than the owner of the property. You may be a sub-tenant, rather than a lodger, if you rent your room from another tenant or you have a lock on your door and other people need your permission to enter the room.
What rights do licensees and subtenants have?
Licensees don't have many rights, unless they've been given a license agreement. Check your agreement to see what rights it gives you. Without a license agreement, a landlord can evict a licensee quite easily The landlord just has to give the licensee reasonable packing up time. In reality, this could mean giving someone just a day or two's notice before they have to leave.
By contrast, subtenants have the same rights that the main tenant who rented out the property to them has. So, if Tom is a tenant and he gets the landlord's permission to sublet a room in the property to Cathy, Cathy has the same rights as Tom. However, if Tom leaves Cathy won't have any rights to stay on in the property. And, if the landlord gives Tom notice to quit the property, this notice will also apply to Cathy. Of course, if Tom wasn't allowed to rent the property to Cathy and subletting is a breach of his tenancy, the landlord could try to evict both of them.
How will you cope with a lodger?
If you've decided to rent a room in your home, think about how this will work practically. You may want to set up a lodger agreement with your lodger that clearly explains
- how much the rent is, what it covers and when it should be paid
- which areas the lodger has access to and which he or she does not have access to
- any reasonable house rules which you would like the lodger to abide by
- how much notice either of you must give if you wish to end the agreement.