How to Make Money by Taking in a Lodger

The number of people taking in lodgers fell dramatically during COVID but, as things start to open up, the signs are that’s likely to change. SpareRoom polled 1,237 people who have either had a lodger previously or downloaded a guide on how to. Of those who don’t currently have a lodger, 84 per cent said they plan to in the near future.

Homeowners considering becoming ‘live-in landlords’ may be particularly interested knowing that taking in a lodger lets them earn a tax-free income of up to £7,500 – the equivalent of receiving a £10,500** gross pay rise at work for basic rate taxpayers (going up to a £14,000 pay rise for earners on 40 per cent tax).

The ‘pay rise’ is a benefit of the Rent a Room scheme, established by the Government in 1992 to encourage homeowners to rent out their spare rooms. Following a six year campaign from SpareRoom, supported by Shelter, the threshold was increased from £4,250 a year to the current level of £7,500.

The average ‘pay rise’ needed to take home the same amount of income provided by letting out a spare room to a lodger can be seen below for the 5 largest cities, based on population (figures based on average room rents***):

  1. London: £11,861 (20 per cent tax) / £15,814 (40 per cent tax)****
  2. Birmingham: £6,818 (20 per cent tax) / £9,091 (40 per cent tax)
  3. Glasgow: £8,138 (20 per cent tax) / £10,851 (40 per cent tax)
  4. Liverpool: £6,745 (20 per cent tax) / £8,993 (40 per cent tax)
  5. Bristol: £9,256 (20 per cent tax) / £12,341 (40 per cent tax)