Should the new person renting be a Tenant or Lodger?

by Readers Question

9:54 AM, 16th February 2014
About 7 years ago

Should the new person renting be a Tenant or Lodger?

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Should the new person renting be a Tenant or Lodger?

My husband and I are about to buy a 2 bedroom flat for our daughter who will use the living room as a bedroom, the small bedroom will be used by us when we visit the city from time to time and we propose to rent out the other big bedroom. Should the new person renting be a Tenant or Lodger?

We have experience of renting properties and usually choose excellent tenants. However, in the circumstances of a shared flat if something went wrong it would be easier to ask the renter to leave if she was a Lodger. However, as this is not our main home but a place where we will visit and stay at times, technically can she be a lodger?

Could we rent the flat to our daughter and let her take the new person in as her lodger but all the rent received would be given directly to us. The annual rent would be in excess of the government’s Rent a Room Scheme so if our daughter received the rent would she be liable for tax even though she would pay it all over to us along with the smaller rent she would pay us.(She will be a poor student for the next couple of years!)

The other option is to rent the room as an AST and hope we make a good choice of renter!

Any advice would be gratefully received.

Thanks a lot.

Marie



Comments

Mark Alexander

10:00 AM, 16th February 2014
About 7 years ago

Hi Marie

Sorry to take so long to post your article and my response, we have been overwhelmed with readers questions just recently.

No doubt whatsoever in my mind based upon the circumstances you have outlined, lodger every time.

Reasons are, as you say, easy to evict in the event of a problem and also no deposit protection issues to deal with.

Suggested structure, you give your daughter an AST (even if the rent is only a perrcorn) and grant her permission to have a lodger in the spare room. If you need to juggle the finances that's easy too simply by adjusting the rent you charge to your daughter. The first £4,250 your daughter will get from the lodger will be tax free too so that's also a very tax efficient way for you to help her financially if that was your plan 🙂

You may not be able to offset this mortgage against other rental profits though, please check this with your accountant.
.

Adrian Jones

10:19 AM, 16th February 2014
About 7 years ago

Hi Marie,

Having seen how my sons and other students lived during their time at Uni, my advice would be to rent the other room and use the extra income to pay for a hotel when visiting.

Much more comfortable and probably better for you financially.

Good luck.

Mandy Thomson

10:52 AM, 16th February 2014
About 7 years ago

Good advice from Mark.

However, make sure you and particularly your daughter are 100% happy with the person (whatever their tenancy status will be) and get them properly referenced (as with a whole property tenant) if you don't know them - so many skip this step in a house share situation and live to regret it bitterly! Even if the flat mate is a lodger, you can't normally simply ask them to move out there and then and many people find themselves stuck with a rogue lodger who refuses to budge!

If your daughter chooses someone she already knows, she needs to be extremely careful here too that both she and her flat mate agree on house rules - if either party is unsure about what will annoy them, as they haven't lived in a house share before, they need give this a lot of thought first - ask them to google "house share quiz" - for tools to help.
Many friendships are lost because of failed house shares (I've personally lost two friends this way).

One possible complication with a lodger situation is that there is the potential for the lodger to feel that it's not their home - making for a somewhat awkward living situation between the two flat mates - a good lodger landlord should treat his or her lodger as an equal flat mate (at least for day to day use of the home) and allow them to make it their home too.

Mark Alexander

11:30 AM, 16th February 2014
About 7 years ago

Reply to the comment left by "Adrian Jones" at "16/02/2014 - 10:19":

Good advice Adrian, my stepson is at Uni and we always choose to stay in a hotel, even though we could stay at his place 😉
.

Mandy Thomson

11:43 AM, 16th February 2014
About 7 years ago

Reply to the comment left by "Adrian Jones" at "16/02/2014 - 10:19":

The only thing is that once you have more than two rooms let in a shared property, this can then result in the property being classed as an HMO (and subject to licensing regulations). However, this varies from one local authority to another, so best to check with them first.

Jerry Jones

12:55 PM, 16th February 2014
About 7 years ago

As regards the daughter's tax position, not only does she get her rent-a-room allowance but nearly £10k personal allowance before income tax applies. Is this being overlooked or is she a lot better off than the average student for income?

Mandy Thomson

14:13 PM, 16th February 2014
About 7 years ago

Reply to the comment left by "Jerry Jones" at "16/02/2014 - 12:55":

If she were to earn more rental income than the £4,250 rent a room tax threshold, but her yearly income was still less than her £10k personal allowance, she would need to fill in a tax return but she wouldn't actually have any tax to pay. There are some tools online for calculating this - they can be found by googling "rent a room scheme ready reckoner".
As £4,250 is less than the current UK average room rent, and lets face it, those who let a room usually do so because they need the money, SpareRoom and Shelter have raised a petition to sign under their Raise the Roof campaign to get the government to increase the threshold.

Highland Lass McG

16:49 PM, 16th February 2014
About 7 years ago

Hi
Thanks a lot to everyone for the sound advice. It's comforting to know that we can go down the Lodger route and we will make sure, as much as possible, that we find a suitable person who will enjoy sharing the flat.

I hadn't thought about our daughter's £10,000 tax free allowance as well as the Rent a Room Scheme. I will definitely sign the petition to have the Rent a Room limit increased.

It's great to have such an excellent forum where people can get help and also contribute their knowledge and experience.

Best wishes

Highland Lass McG

18:57 PM, 16th February 2014
About 7 years ago

Hi
Thanks a lot to everyone for the sound advice. It’s comforting to know that we can go down the Lodger route and we will make sure, as much as possible, that we find a suitable person who will enjoy sharing the flat.
I hadn’t thought about our daughter’s £10,000 tax free allowance as well as the Rent a Room Scheme. I will definitely sign the petition to have the Rent a Room limit increased.
It’s great to have such an excellent forum where people can get help and also contribute their knowledge and experience.
Best wishes

Industry Observer

19:37 PM, 16th February 2014
About 7 years ago

And the mortgage lender's position is - in terms of consent to let even tough it is a BTL loan?

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