Moving from joint owned flat to rental - how much can I rent my room out for?

Jessie135

Hi,

Please can I get some advice on renting out a room in my joint owned flat!

I jointly own my 2 bed flat with my sister (joint tenants on the lease) and I’m moving out in September to rent with my boyfriend, we will be renting out my room (likely to a friend of hers).

We currently put money into a joint bank account to pay for mortgage (£570 per month each) and bills.

How should we rent out the room? If I take the rent then I believe that makes the renter a tenant (we can’t / don’t want to change our mortgage to buy to let because my sister will remain there) so I think my sister needs to take the rent to make the renter a lodger.

Market rent for half the flat (1 bedroom) is £1,000 per month so ideally we would like to make a little money off this renter if possible but happy of course to make less than we would with market rent. Does the £7,500 per year (£625 per month) rent a room scheme apply here and is that the maximum we can charge?

How much can we charge them without paying income tax and how does the money transfer need to work (noting the joint bank account)?

Sorry for the long message and thanks in advance!!

sourpuss2021

Have you looked on SpareRoom to see the going rate in your neighbourhood for a room in a 2-bed flat with a live-in landlord?

The amount paid by a lodger will likely be less than the market rent of half a whole flat.  Partially this is because lodgers prefer bills to be included, but also as they have less freedom and haven’t chosen the other occupant (your sister).

So for instance while the whole flat when empty might rent for  £1700 and bills might be £300, a lodger wouldn’t pay as much as £1000 unless the room size and location are exceptional.   

You can charge above the £7.5k Rent a Room level, however.  You just need to pay tax on any amount over the threshold.   

I’m not sure whether you can deduct expenses such as any redecoration or buying furniture for  the lodger’s room.

Nearlyold

As I understand it you can't claim expenses if you use the Rent a Room scheme. 

propertyrental

Your lodger should have a 'lodger agreement' or 'Excusive Occupier agreement' with your sister (not a tenancy agreement!), and not with you.

You stop contributing to the joint account (or if necessary reduce your contributions appropriately).

The lodger pays rent into the joint account, or perhaps better, to your sister who puts it intothe joint account if that is where the mortgage comes from.

As sourpuss says, lodger agreements typically include utilities etc., and maybe some consumables (toilet paper, washing up liquid etc) but this should be agreed in the agreement.

Lodger agreements are also for the room, not half the property, though shared use of other rooms should be pre-agreed as appropriate. Hence rents are lower than for half a tenancy. Research local rents for lodgers, not tenancies.

For tax implications read the gov advice. Links within this post here:

Post 10: Lodgers: advice & links for landlords & lodgers