Enquiry - Lodgers

Albermarle

Antithermal1723 said:

Oooo gosh! Have you encountered a bad lodger before? Luckily I know my friend very well and they don’t involve themselves with anything drug or crime related. 

What other rules do you have in your agreement? 

One sensitive area is how often the lodger has friends around, especially ones that stay overnight, if you catch my drift .

RAS

Particularly when they start taking showers, using your laundry facilities etc. Whether they can have keys? 

It's not necessarily your lodger that's the issue as that the lovestruck sometimes leave sense at the door. 

FreeBear

Antithermal1723 said:

Oooo gosh! Have you encountered a bad lodger before? Luckily I know my friend very well and they don’t involve themselves with anything drug or crime related. 

What other rules do you have in your agreement? 

Sit yourself down with a stiff drink, a bag of popcorn, and have a read of this -> https://forums.moneysavingexpert.com/discussion/5848168/lodger-wanting-to-cook

Most of the "rules" are common sense..

• No naked flames.
• No smoking indoors.
• No food or drink upstairs.
• No cooking after midnight.
• Washing up to be done promptly after eating.
• Pets and guests allowed only with prior consent.

Oh, and no cooking of eggs - I can't stand the smell, and it makes me want to throw up.

saajan_12

Antithermal1723 said:

Update:

I’ve decided to rent the room for £550 as it’s similar to the price according to spare rooms and our bills will be split in half. I’ve drafted a lodger agreement so that’s out discussion are in writing and it just covers my back (was advised to create one after speaking to a friend who also has a lodger aha). 

The £600+ rent is crazy! I’m not sure why that figure even came to mind because I wouldn’t do my friend wrongly. 

I really appreciate all your advice and feedback, it’s reassured me  

This is a good plan - the primary metric for what to charge should be the market rate. That way the lodger doesn't feel hard done by as that's what they'd pay elsewhere and nor do you. 

Splitting your costs isn't really appropriate as it was your choice of property, you picked a 3 bed when he only has 1 bed + shared areas, etc. 

Remember for rent a room scheme purposes, its the total amount paid that counts so £650 £700 (assuming £150 bills). If you only declare the £550 rent then you're effectively claiming £150 as an expense deduction, which would be double counting as the rent a room scheme is meant to be INSTEAD of all expenses. 

EDIT: I can't add up, 550+150 = 700 not 650. 

Antithermal1723

Thank you Saajan for your comment. 

For the rent a room scheme - is that just income I receive from renting the room and excludes bills I receive from them (I can’t get my head around it) e.g if I charge £550 just for rent x 12 = £6600, I am within my threshold - does that mean I don’t have to refer back to HMRC as I don’t need to do anything? 

trix-a-belle

Saajan has been very clear in their post, it is all the money received from the lodger that is taken into consideration under the scheme umbrella, you then have the choice of how you deal with the tax if that figure is over the threshold.

Using Saajan's figures of £500 rent + £150 bills you would receive a total of £650/month = £7800 per year = over the scheme threshold, therefore you would have the choice to use actual receipts of expenses (I don't know if this is apportioned by lodgers private space, it isn't made clear where they have generated the figure in the .gov example) and only pay tax on the profit made (rent a room limit is then discarded in this method of paying tax), or pay tax only on rent a room earnings above limit: in this example pay tax on the £300 that is over the £7500 limit.

If the lodger paid £500 rent + £125 bills = £625/month = £7500 per year it would not exceed the limit of the scheme and not be due any tax but you can not offset anything as you are getting the benefit of not paying any tax on that income.

The key section is 1.2 https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2025 with a nice worked example of over threshold options in 1.4

If it hasn't been mentioned at all it is good practice to have it paid into a different account to the one your mortgage goes from just so you have that separation and it can't be argued down the line of any kind of contribution towards the mortgage, though you are clearly being organised and having a lodger agreement in place from the start.

Other points i'd consider in addition to FreeBear's above that I have had experience of;
- no showering/baths after a reasonable hour - my extractor fan which has a run timer has woken the whole house, stayed in an airbnb where someone apparently read 'no showering after Xpm' (for a similar extractor fan reason) so didn't but instead was full on splashing around in the bath in the middle of the night
- definitely just have 1 months notice, you can easily be more flexible & allow them to stay a bit longer within reason (I did for my last lodger) but if you want them out then you don't want to prolong the agony (also been there & they were not there for the Christmas/New Year period but it was still painful)

saajan_12

Antithermal1723 said:

Thank you Saajan for your comment. 

For the rent a room scheme - is that just income I receive from renting the room and excludes bills I receive from them (I can’t get my head around it) e.g if I charge £550 just for rent x 12 = £6600, I am within my threshold - does that mean I don’t have to refer back to HMRC as I don’t need to do anything? 

No its specifically the total including bills money that counts. The reason instead of deducting the lodger's share of bills as an expense, you get to deduct the whole Rent a Room amount of £625 a month. 

Eg say lodger's share of bills = £150, rent = £550, for a total payment of £700. 
Then EITHER deduct expenses ie £700 income - £150 expenses = £550 net income x 20% tax = £110 to pay.
OR deduct rent a room relief ie £700 income - £625 relief = £75 taxable income x 20% tax = £15 to pay

Clearly the latter would be easier, even with not deducting the expenses. Also the numbers are pretty small, so its not worth trying to circumvent for £75 a month taxable income. I've assumed 20% tax but its treated as normal income at your marginal tax rate. 

Antithermal1723

Thank you!!! I’m very nervous about being a first time buyer and have been overthinking everything!! 

Albermarle

Antithermal1723 said:

Thank you!!! I’m very nervous about being a first time buyer and have been overthinking everything!! 

Better to overthink, than not think at all !

Antithermal1723

Before I get my keys to the property I’ve purchased, do I need to do anything regarding lodging?

- I’ve emailed my mortgage lender regarding lodging but haven’t heard back as of yet. I remember when I had my mortgage meeting that lodging I didn’t need to inform them unless I was renting the entire property which I won’t be as I intend the property to be my main residence.

- I’ve researched into organising a fire safety / boiler check for a certificate to provide reassurance that the property is safe and the gas safety has passed.

- Do I need to tell HMRC about signing up for the rent a room scheme or if I’m lodging? 

- I’m in the process of finalising the lodger agreement but not sure what the inventory section should include if I’m providing all the furniture. Do I just list what’s included in each shared area or just the lodger’s room? 

I feel like I should be doing more atm but haven’t got any ideas 😅