To earn money and spread the cost of living, more people are turning to subletting – renting their property to a third party in its entirety, or offering a room while continuing to live there – making money by having others move in.
Those people are tenants – they give you money, whatever’s agreed, and the law gives them rights. But before you go ahead and sublet, it’s important to be aware of a few things. You don’t want to end up questioning your motives, or even asking yourself – am I breaking the law?
Finding a tenant
Simply put, a tenant is someone awarded exclusive possession of a room or property for a specified time period. It’s a more official status than a lodger or visiting relative, with actual rights and money changing hands.
To find a tenant, talk to friends and family, and look at websites for those advertising rooms and rental property, with posts from people looking. Arrange to meet applicants in person. Keep it casual and friendly, but remember this is a business arrangement – ask about their job (confirming they have the means to pay you) and to see references.
Once you find somebody you’re happy to trust with your possessions, draw up a tenancy agreement in writing – detailing what they’re renting, the amount being paid, payment method, start date, length of tenancy, notice period, and both their obligations and yours.
Both sign it, with witnesses, to protect yourselves from any future discrepancies. Basic tenancy agreements are downloadable online.
If you’re still living in, remember to be clear about how utilities costs will be split, or if usage is factored in with the rent. Also, ask the tenant for a deposit upfront, to cover yourself for any missed rent or damages.
Your responsibilities
Now you’re a landlord, you’re legally obliged to maintain certain living standards for your tenants. Generally, this means checking utilities are working and safe, and fixing things if not.
It’s important to tell your mortgage lender and insurance companies you’re subletting – it may not actually affect your costs too much, but you don’t want to be caught out should issues arise. If your tenant is living with you and using furniture and electricals covered by your home contents insurance, make a note of this.
Also, note that if you’ve been living alone and then sublet a room, you’ll lose your council tax single-occupancy discount. Make sure the gains you make in rent cover this!
You also need to respect your tenant’s rights. You cannot turn up at your property unannounced if they’re renting it from you, or enter their room if you still live in, without 24 hours’ notice.
The benefits
While the rent you receive counts as earnings, meaning you must declare it to the tax office, there are ways in which you can reduce what you pay.
The Rent a Room scheme relates to letting furnished accommodation in your only or main home and was set up by the government: from April 2016, landlords are exempt from tax on their first £7,500 earned annually from having a tenant(s). So, as long as you’re not charging more than £625 per month, you won’t take a hit.
Alternatively, the HMRC lets landlords deduct mortgage costs and some other expenses from their rental income. The route you take can depend on your circumstances, but Gov.uk will explain more.
Illegal subletting
There are circumstances where subletting is illegal – mainly when people aren’t actually entitled to sublet the property. If you have a leasehold apartment, you may need the freeholder’s consent. If you don’t own the property and are already renting from a landlord, then decide to sublet a room without their knowledge or permission, this could land you in trouble too.
There may be a scenario when someone already renting decides to sublet – e.g. if they want to move out before their contract expires, but their landlord won’t let them. However, responsibility lies with the original tenant – the contract is in their name. The landlord is entitled to take legal action against them, while the subtenant will find they have very few rights in this situation at all.
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