Spare cash for your spare room: here's how

Last updated: 20 September 2019   By Justin Schamotta

Have a room going spare in your house? You could be earning extra income by taking in a lodger.

Letting someone into your home is a very personal decision - and, to some extent, even risky - but many people have positive experiences and in some cases rely on the extra income.

Income generated from a spare room can be used towards increased costs for example, or even to help pay off the mortgage early.

However, when renting out your spare room it's worth taking the time to plan how it will work best, so in this guide we'll be covering:

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1. Is taking a lodger for me? House rules

The first question you should ask yourself - before you think about the practicalities and, indeed, legalities of taking in a lodger - is whether having another person in the house is going to work.

While there are horror stories of lodgers being banned from doing anything apart from sleep in the room they're renting, that isn't the desired result of a lodging agreement. Generally, it's a transactional arrangement that allows one person somewhere to live and provides the household with a little extra cash.

That means a lodger will expect to use the facilities (bathroom, kitchen etc) as they would in a home they rented privately or owned. The main difference is that they don't have the right to exclude you from any part of the house, including the room they rent.

Even so, setting ground rules or even writing a brief contract of house rules can alleviate some of the problems that often occur when we're living with someone beyond our typical family unit. There's more on this below.

Becoming a resident landlord

If you take in a lodger while in a property where you're the named owner or tenant, you're technically a "resident landlord" while your lodger is known as an "excluded occupier".

It goes without saying that the safety of you, your family and your property is paramount when you're considering bringing a lodger into your spare room.

So, use reputable websites to find lodgers or act through word of mouth. Don't invite anyone to your home if you're not sure about them - meeting in a local coffee shop is as good a place as any to get to know a lodger before offering a room.

Some would-be resident landlords feel awkward about asking for references, reasoning that the would-be excluded occupier will only be paying a small sum, so it seems like a lot of hassle for them to provide references.

The truth is, asking for written references demonstrates that both sides are committed to making the lodging situation work. The landlord is proving they care about their property and the tenant is demonstrating good character - it's a mutually beneficial arrangement.

Weekday lodgers

If moving someone into your home full-time sounds a little much, there are plenty of people looking for Monday to Friday accommodation such as those working away from home or students attending university.

For some people, this can be the best of both worlds. It brings in extra income but leaves the weekend as family time. If this is of interest there are websites like that cater to this demographic.

Remember, though, just having them there for a few days a week might not lower all of the red flags we highlight in this guide.

Is it legal to take a lodger?

In most cases, you'll need to inform someone if you're taking in a lodger.

If you own your home but are still paying a mortgage, for example, there's often a clause in mortgage contracts requiring the lender's permission before the property is rented out. While some take this to mean they need to be informed if the whole property is rented out, this isn't always the case, so read the small print carefully and check with your mortgage lender if you're unsure.

For tenants, it can depend on the nature of your housing contract and who that contract is with. If the tenancy is with a private landlord, check the tenancy agreement to see if it explicitly forbids taking in a lodger.

In both cases, if permission is granted from either the lender or the landlord, be certain to get it in writing.
We've gone into more detail about council tenancies below, as these can be a little more complicated.

What about home insurance?

Something else to remember is that home insurance companies will often alter premiums if a lodger enters the property.

This is because there's an unknown quantity with theoretical access to valuables and capable of destroying property. Whether that's fair or not, it's clear that inviting a lodger into your home could raise your insurance premiums and that's something to be aware of when working out whether it's financially viable.

Don't be tempted not to inform the insurance company of the presence of a lodger. If something happens (whether they were involved or not), the insurance company can use that deceit as a reason not to pay out.

2. How much can I make?

Some people rent out their spare rooms because they like the presence of someone else in the house, but for others a major motivating factor is financial.

How much you can make on your spare room(s) depends on the size of room and the level of facilities you could offer to a potential lodger, as well as your location. Unsurprisingly, spare rooms in busy city locations - especially around London - are at a premium, and you'll find rather small rooms at rather extravagant rates in sought-after areas.

It's important, however, to remember that tenants may well expect more for their premium rent, such as being recognised as an official subletter (where they have exclusive use of their room). If renting a room in a premium location, always make use of a contract - see more detail about this below.

Figuring out how much to charge isn't easy. To get an idea, have a look in your local newspaper for similar properties, browse the local estate agents or take a look on websites such as and for current prices in your area.

It might also be useful to get in touch with the HR Department of local employers and hospitals who often assist employees in finding accommodation.

If you have children at home this can also add extra peace of mind since many professionals, such as doctors or the emergency services, will be fully DBS checked.

When there are children in the house, this should increase the degree of care tenants take when trying to find a lodger. Putting clear guidelines into the tenancy agreement about the children will help the lodger understand the boundaries when it comes to the family.

3. Will I have to pay tax?

The Rent a Room Scheme allows you to earn up to £7,000 per annum tax free, although note that this figure will be halved if you share the income with a partner or other person. Even so, it's a huge tax-free increase compared to the previous threshold of £4,250 that was in operation until 2016.

Assuming your spare room brings in less than this, around £134 per week or £580 per calendar month, the tax exemption is automatic and you won't need to declare it. For most households outside busy urban areas, this will cover most if not all of the extra income, and it can be a tidy sum for the average home.

If your rental income is higher than the tax-free allowance, however, you will need to submit a yearly tax return, and consider seeking further tax advice.

For more details on the Government Rent a Room Scheme see the Rent a Room page.

The page above also includes information on becoming a resident landlord, tenancy types, rent, tax and bills, and houses in multiple occupation - which may apply if you take in more than two lodgers.

Council tax

Don't forget that if you're currently living on your own, taking in a lodger could mean you're no longer entitled to the single person's discount on council tax.

However, you may still be eligible if your lodger is a full time University student - make sure to check with your local council in any case.

4. I live in a council house, can I rent my spare room?

Council tenants are often secure tenants with a lifetime tenancy, and these tenants are legally allowed to take in a lodger. However, some tenancy agreements may state you need to inform the council, so be sure to do that if it's necessary.

It's worth noting that any income from a lodger must be declared and can impact how much housing benefit or universal credit a tenant receives. If you don't declare the income and accept the decrease to any benefits, you're committing an offence.

Some newer council tenancies won't be lifetime tenancies. Instead, they'll be known as flexible tenancies that last for a fixed period. Again, tenants with these agreements are legally permitted to do so, although it does limit how long you'll be able to offer a room to a lodger if, for example, your tenancy ends in six months and you don't know whether it will be renewed.

There's one further type of council tenancy, and, with a demoted or family intervention tenancy, you probably won't be able to take in a lodger. These tenancies are generally related to anti-social behaviour breaches and will often explicitly exclude tenants from taking lodgers. If the agreement doesn't explicitly exclude it, lodgers may be permissible, but it's probably safer to check first.

5. Protecting yourself: rental agreements

Whether you decide to opt for a lodger on a short or long term basis it's vital that you enter into a formal tenancy agreement so as to protect both yourself and your lodger against any potential problems that may arise.

Whilst we all tend to enter into agreements with the best of intentions, unexpected issues can and often do arise - such as job loss, rent increases (due to higher living costs) and even changes in personal circumstance. Whatever the reason, you need to make sure it's covered from the outset.

A tenancy agreement sets out all the vital information that you need to be clear about before entering into any arrangement - such as how and when the rent becomes payable, who pays the utility bills and council tax etc., and whether there are any restrictions on the tenant (e.g. whether pets are permitted or the lodger is allowed to smoke in the property).

This list is far from exhaustive, of course, but it's certainly advisable to take legal advice before entering into any agreement so that you're clear on what you should consider and perhaps include in the conditions.

For free advice, you can speak with your local Citizens Advice Bureau about this. Search for your nearest CAB here.

Other means of protecting both yourself - and your property - include taking a deposit from your lodger and even asking for references, perhaps from an employer or, ideally, a previous landlord.

Your tenancy agreement also needs to be clear on how you can use the deposit in the event of damage or non-payment of rent.

It can be tempting to offer an informal arrangement without an agreement or deposit, but this can lead to problems further down the line. It isn't untrusting to request something in writing - it's business sense, and this is a business arrangement you're entering into.

Take a look at guide for landlords for more information on how to protect yourself and ensure that your renting arrangement avoids any common pitfalls.

Finally, remember this is a jointly beneficial agreement that provides housing for them and a little extra cash for you. While it's important to put rules in place to protect both sides, it still needs to be a comfortable arrangement or it won't succeed.


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