Rent a Room Scheme

Why might it be of interest?

Given the current landscape around supported living your young person may be living at home for some time – potentially years – or, of course, you may not want your young person to leave home just yet anyway.  There is nothing wrong in a young adult making a reasonable contribution towards their accommodation and household costs.

You do not have to charge your young person anything to live in the family home but you can charge rent if it works for your family.  I would suggest that you only charge rent if your young person can actually afford it!

There is a separate lodger agreement on the information hub:  https://ruils.co.uk/article/sample-lodger-agreement/

This article is about charging rent and things you should consider and the government Rent a Room Scheme:  https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme and https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet.

Rent a Room Scheme

If you google this you will come up with information on the government website, see above.

There is not actually a registration process!  If you receive no more than £7,500 in gross receipts during the tax year from providing furnished accommodation to your young person in your only or main home, the tax exemption applies automatically.  You would not normally need to notify HMRC or complete a tax return solely because of that income.

The £7,500 threshold is reduced to £3,750 for each person if the rental income is shared, for example between joint owners. Gross receipts include not only the rent but also payments for things such as meals, cleaning, laundry or other services provided as part of the arrangement.

We can’t see anything in HMRC’s qualifying conditions that excludes the scheme simply because the lodger is your adult son or daughter. The important points appear to be that:

• The accommodation is furnished
• It forms part of your only or main home
• There is a genuine arrangement under which the young person pays for their accommodation
• The total gross receipts remain within the relevant threshold

Transparency is key here and three things are important:

• You should have a written lodger agreement
• Payment should be made regularly by bank transfer from your young person’s account to yours
• Keep records – bank statements, annual record of amount received, lodger agreement

Further guidance:

• Set the rent at a reasonable level based on actual costs – you should be able to defend your position if needed (unlikely)
• Don’t backdate – in general only start taking rent from the point you have agreed that they will be paying rent from
• Payments should be weekly or monthly – avoid lump sums for longer periods or back payments
• It can be a single figure or you can separate rent from other contributions, eg towards food, utilities, etc
• Keep evidence showing that this is a genuine living arrangement

You do not want to find yourself in the position of appearing to have used your young person’s money just to reduce their liability for social care costs or to come under the thresholds for claiming Universal Credit.  This is called a deprivation of assets and the LA or DWP could treat your young person as still having the money.

Following all of the above should keep you safe.

One question that comes up is that if you charge your disabled young person rent to live in your home should you also charge any other children rent to live in your home?  It is a reasonable question and it may be that you should charge other children living at home rent.

I have already said that you should only be charging rent when your young person can afford it.  On that basis if your disabled young person has savings or is in receipt of benefits such that they can afford it but your other children are perhaps studying with no source of income that might be reasonable grounds for not charging them rent.  However, if they are working you might be on shakier ground if you don’t charge them rent.

What we’re aiming for here is that you can defend your decision to charge your disabled young person rent.  To be honest, I think it’s unlikely that you would have to do that but don’t find yourself in a position which is unbalanced and unfair – and remember that it’s perfectly reasonable to charge your young people rent when they live in the family home and I think especially when it’s likely to be for an extended period of time.

Potential conflict of interest:

If your young person has the capacity to understand the lodger agreement and that they are paying rent to live in the family home then they should sign the lodger agreement.

If they don’t have the capacity to understand this there is a potential conflict of interest – you are the person who will receive the rent but you are also the person making the decision that they should be paying rent and likely the person (DWP Appointee or deputy) managing their money.

This doesn’t have to be a barrier but be aware of the potential conflict of interest.  I think the advice so far should protect you from problems as long as it is in your young person’s best interests to continue to live in the family home.

Tenancy or Lodger Agreement?

It is simpler by far to have a lodger agreement rather than a tenancy.  A tenancy comes with a set of rules and would make you a landlord.  If your young person did not abide by the tenancy agreement you would have to take action against them.  If you are already a landlord you might want to consider a tenancy agreement but otherwise stick with the lodger agreement.

Regardless a young person living in the family home (or with another close relative) cannot usually claim the housing element of Universal Credit to pay their rent.

And finally – the £7,500 per year to rent a room is the total regardless of how many rooms you rent – it’s not per room.