Are you curious about the Rent a Room Scheme in the UK? Would you like to start private renting in London or anywhere else, but are overwhelmed by tax laws and local regulations?

We can help.

In this post, we’ve outlined the details of the UK Rent a Room Scheme and are happy to help you better understand your options. 
Explore how much you can charge, how many lodgers you can have, and how to navigate the tax laws to make this program work for you. 
 

The basic qualifications are: 

 

• You live at home and want to rent out a spare bedroom (known as a resident landlord)
• The room must be furnished
• The individuals who rent your room must be considered lodgers and share your common areas with you.
• You earn no more than £7,500 per year from private renting 
• You receive an exemption only for the rental income, not for additional services such as meals, laundry, or cleaning. If you charge for them, you will owe a separate tax. 
• You must report your income to HM Revenue and Customs (HMRC).

 

If you can meet these requirements, you could be the perfect candidate to be a resident landlord.

 

Taxes And Bills Under the UK Rent a Room Scheme
Understanding Rent, Bills, and Taxes

 

^Rent
What you charge for rent is completely up to you. However, your tenant should agree to that amount before moving in. Legally, you can accept a deposit before the move-in date, and you accept Housing Benefit for rent.

 

For tenants paying weekly, you are required to provide a rent book to keep track of all payments received.

 

 

^{Council Tax}
Under the Rent a Room Scheme in the UK, you are responsible for Council Tax. You can include this as a part of your rental charges, however. Also, be sure to reach out to your council to find out if having a tenant means you’re no longer entitled to a single-person discount. 

Check with your local council to determine who should pay the Council Tax. 

 

^{Utility Bills}     
You can, and should, include a charge in your rent for utility bills or simply install pre-paid meters in the home. Keep in mind that you can only charge the amount you've paid for gas and electricity in addition to VAT, or you may face civil proceedings. 

 

^{Income Tax} 
With the Rent A Room Scheme, you’re not liable for taxes until you hit the £7,500 per year threshold. If you fall outside of that threshold, different charges apply.
 

How Much Can I Charge a Lodger without Paying Tax?

 

To avoid paying tax on your rental room, you must earn less than the £7,500 per year we've mentioned. No further tax action must be taken if you earn less than that amount. 

However, if you earn more than this from your rental property, you must complete a tax return with this income included. 

If that's your situation, you may choose not to sign up for the scheme and instead record your income and expenses on the property pages of your tax return. 
 

 

How Many Lodgers Can I Have?

 

Regarding the number of lodgers you may have, the HMO Housing Act of 2004 schedule 14(6) demands that the maximum number of lodgers living in a property before it being classed as an HMO is two. 

This means that if three or more lodgers live in a property besides you or your family members, your property could be deemed an HMO. 

If you’d like to stay on the Rent A Room scheme, you’ll need to limit your lodgers to two total. 
 

 

Do I Have To Declare Rent a Room Income?

 

When operating as a resident landlord, you pay tax on your gross receipts over the Rent A Room limit. This means your gross receipts are £7,500 per year. 

If you select this option, you cannot deduct any expenses or capital allowances. 

HMRC uses your actual profit to calculate your tax, so keep that in mind when calculating expenses. 
 

 

What Do I Need to Know About Tenancy Agreements?

 

Tenancy agreements are contracts between a resident and a landlord. 

So, let’s say you have someone interested in renting one of your rooms, but you want to follow the legal process. 

The first step is to create a tenancy agreement. Here are a few tips and tricks for creating a tenancy agreement.

Step 1. Decide on the type of tenancy.

 

The agreement would be based on the Rent A Room scheme in our scenario. 

Step 2. Include Essential Information.

 

• Include information such as: 
• Contact information for you and your tenant
• Property Details
• Rental Term 
• Rent Details 
• Deposit Details 

 

Step 3. Outline your individual responsibilities

 

Include any information on property maintenance, repairs, and responsibilities for utilities or council tax. 

Step 4. Include clauses for Special Conditions

 

Make your requirements known regarding smoking, pets, and subletting. 

Step 5. Detail the ending of the tenancy

 

Include any notice periods and conditions for you and your tenant to terminate the lease. 

Step 6. Legal compliance

 

Ensure the agreement complies with the latest UK housing laws, such as deposit protection, right-to-rent checks, and property safety standards. 

Step 7. Review and sign

 

Once your agreement is drafted, both the landlord and the tenant should thoroughly review it. Ensure all parties understand their rights and obligations. 

Step 8. Update the agreement

 

Regular reviews and updates should be made to ensure that your contract complies with new tax laws, etc. 

 

 

How to Find a Lodger?

 

Armed with a better understanding of the Rent A Room scheme, the next step is to find people to rent your room! 

Fortunately, we can help with that. FlatMates.UK offers an easy way to find tenants to rent out your room. 

You can add a tax-free lodger and additional income with this program, making it well worth the effort to find a lodger. 

If you're ready to start, contact our team or visit our site. We’ll be happy to help you!