The decision whether or not to take in a lodger can often be a difficult one and there are a range of things you will need to consider before doing so.
A lodger is someone who rents a room in your home and shares facilities, without having sole use of the property. A lodger is not the same as a subtenant, who would have different rights.
Bedroom subsidy (under occupancy charge)
The bedroom subsidy (under occupancy charge) was introduced by Government in April 2013 and applies to social housing tenants who are of working age (below pension credit qualifying age) and have one or more spare bedrooms. The clarification of a spare bedroom is based upon the Government's size criteria rules and is determined by the number of people living in the property, their age and their gender. Housing benefit will be reduced by 14% for one spare bedroom and 25% for two or more spare bedrooms.
Taking in a lodger can help to manage the under occupancy charge and you should seek independent advice on how the income from a lodger could affect your other benefits.
Things you should consider before taking in a lodger
You must provide your lodger with a furnished room, and use of other communal areas such as the kitchen, bathroom and toilet. It is up to you whether you wish to provide meals and do their laundry and cleaning.
It is a good idea to do a background check on your lodger for your own safety and security as they will be sharing your home. The extent of the checks and how you wish to do them may differ from one person to the next, and it is for you to decide what checks are appropriate.
What you charge your lodger will depend on what facilities you are providing them with. To give yourself an idea of what to charge, you can refer to websites which advertise rooms to rent to make a comparison.
It is advisable to write up a license agreement that you should both agree the conditions of and sign.
Evicting your lodger
If you wish to evict your lodger you must provide them with a reasonable amount of notice and inform us if you are in receipt of any benefits.
If your council or private tenancy ends, your lodger will not be able to continue living in the property.
Effects on your benefit entitlement
If you take in a lodger you will need to inform your local benefits agency immediately. Taking in a lodger may affect the amount of benefit that you're entitled to. If you don't tell them, you may end up having to repay an overpayment or be prosecuted for fraud. The benefits agency will assume that your lodger is paying you for occupying rooms in your home.
Before Universal Credit
If you have a lodger after the under occupancy charge comes into force on 1 April 2013 their bedroom will be classed as occupied. As long as all the bedrooms in your property are occupied on a permanent basis you will not be classed as under occupying your property and will not be affected by the charge.
However, the rent you receive from the lodger may affect your benefit entitlement. The first £20 of rent received from lodgers is disregarded when calculating housing benefit entitlement. Of any rent you receive from lodgers over and above the £20, half (50%) will count as income for the purpose of your Housing Benefit claim and may result in you receiving less Housing Benefit. You can, of course, use some of the rent from your lodgers to meet the shortfall in your Housing Benefit payments.
After Universal Credit
If you have a lodger after you have moved over onto Universal Credit their bedroom will not be classed as occupied under the Under Occupancy Charge rules. This means that you will be classed as under occupying your property and will be affected by the Under Occupancy Charge. As a result you will lose some of your Housing Benefit payments. However, the rent you receive from the lodger will help you pay the charge and any excess rent you receive over and above the charge will not reduce your Universal Credit (benefit) entitlement.
If you claim single occupants discount for council tax you may no longer be eligible for this if you take in a lodger. You are advised to obtain independent advice about the council tax implications for you in doing so.
If the income from letting a room exceeds a certain amount known as a threshold, then you may also be liable to pay income tax. You are advised to obtain independent advice about the tax implications for you in doing so.
Utilities and insurance
An extra person in the household may increase the amount you spend on things like gas, electricity and water. You will need to decide whether utility bills are included in the lodgers rent and set this information out clearly in the licence agreement. If a set amount for utilities is agreed with the lodger, they may not be as careful with the amount of gas, electricity and water they are using are you would be.
If you have a home insurance policy, you must contact your provider to make sure you are still covered and inform your lodger if they require their own insurance.