Bedroom Tax and lodgers – a good idea? Yes from October!

Take a lodger is the government advice to the 660,000 minimum number of households affected by the bedroom tax and it is time to look at that critically.

It a tenant takes in a lodger today and charges £70 per week then the tenant is allowed the first £20 of this with no change to benefit.  Yet the rest of this (£70 – £20) that is £50 per week will see benefit reducing by £42.50 as the government will deduct 85p of every £1 – an effective tax rate of 85% no less – and so out of the £70 per week charged the tenant will only be £27.50 better off.  Then take off the average £14.66 per week bedroom tax deduction and we see the net increase from now of taking in a lodger is £12.84 per week!

[Note: Some say 85p in every £1 will be deducted after first £10pw others say £1 for every £1 and I use the 85p view above and either way it doesnt change the argument!]

Yes it’s not worth it at all is it – and don’t worry I will come on to more practical issues such as stranger danger and the thought of your daughter (or son) being raped or abused which is an understandable concern.

HOWEVER, In October these lodger rules change and the tenant will be allowed to keep all of the £70 per week without any impact on benefits.

This changes everything in financial terms as tenants will be better off as there will be no benefit deductions under the new Universal Credit regulations.

Yet that still doesn’t get over the stranger danger issue does it reader?  No – so don’t take in a stranger as a lodger and simply take in somebody you know then!!

How about your grandson or your niece or nephew for example or Mrs Jones’ son from over the road whom you have known for 15 or 20 years?  They’re not strangers and the Housing Benefit Regulations (HB reg 2 & (SPC) 2) do allow this as they are not a ‘close relative’ which is a specific term in HB and means:-

‘Close relative’ is defined in the regulations as

• a parent, step-parent or parent-in-law

• son, step-son or son-in-law

• daughter, step-daughter or daughter-in-law

• brother

• sister

• a spouse or partner of any of the preceding people

Briefly if you rent out a room to the above and live in the property then they cannot claim HB.  Yet notice that grandson, granddaughter, niece and nephew are not termed a close relative.

So you rent your ‘spare’ bedroom out to your grandson and he becomes your lodger.

Your grandson may well be 22 and his parents may well be about to suffer a £70 per calendar month non-dependant deduction (NDD) in their HB for him.  So when he comes to live with you and he claims HB the public purse will (a) lose £70 per month with they are getting from the NDD and (b) will have to pay £70 pw in his HB which they were not paying before.

It is probable that many parents will reluctantly throw out their 21 year-old plus children who are not working because of this £70pcm NDD they face from their Housing Benefit and so you, granny, are simply taking in and putting a roof over the head of your grandson.  You will have to convince HB that if your grandson doesn’t pay the rent you will evict him or in simple terms this is not a contrived arrangement but a genuine rental on a commercial basis – and any social tenant becomes a private landlord by taking in a lodger in any case. Yet this allows granny to see more of her adored grandson, keeps the family together and allows granny to mitigate the pernicious bedroom tax. And any good grandson will cut the grass and do little odd jobs for his adored Granny too!

Rent out to non-family but not a stranger

Your son is 22 and he’s costing you a fortune (as all teenagers do) but this £15pw or £70 per month HB deduction because HB class your son as a non-dependant is causing financial misery.  Your good friend Mrs Smith in the next road is in the same boat and you have known her for years now as your son and her son went to school together all that time.  So Mrs Smith kicks out her son because of these NDDs and you do the same with yours….well almost.  You take in Mrs Smiths son as a lodger and she takes in your son.  At a stroke the £70pcm NDDs stops and you have £70 per month more in HB and you are charging Mrs Smiths son £70 per week in HB.  You are also £85 per week better off as is Mrs Smith less of course the £14.66 pw average bedroom tax deduction – so lets just call it £70pw better off.

I could go on with many similar examples but when Universal Credit comes in a lodger becomes a very viable way of increasing your income and taking away the effects of the bedroom tax and take away the stranger danger with family who are not ‘close relatives’ or by renting to someone you know and if becomes very viable indeed.

As long as you can convince Housing Benefit that you will evict the lodger if they do not pay rent and the lodger is on a commercial basis then this is a very straightforward process.  In money terms it is better to take the £14 per week hit of the bedroom tax for the first 6 months (April to October) and then get a £70pw overall increase for the last 6 months of the year as over the year you are better off and then much better off each subsequent year.

Will this have any income tax implications?

No. You are allowed to have an income of £4250 per year, or about £81 per week, from renting out a room before you become liable for income tax.

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COMMENTS

1. I have deliberately kept the above brief to get the main point out there.  The idea is for this to attract discussion and comment and doubtless the correct form of legal tenure a lodger has will be made clear just as examples of tenancy agreements will appear and can be downloaded (though you don’t actually need on to claim HB but I would advise you do!)

2. Doubtless some housing professionals will raise the contrived is contrivance argument, yet the above may be contrived in its lay sense but is NOT contrivance in a HBR sense.  Add the ‘making better use of stock’ issue to this as well which is all the above is!

3. Will the government change the UC regulations because of this?  I strongly doubt it as that would prove they have been disingenuous all along and their take in a lodger idea was a con.

4. I use 22 year-old above to avoid confusion.  Now and until October NDDs apply to 18 year olds plus but in Universal Credit in October it only applies to those over 21.

5. The above will presumably apply from 29th april to the 4 pilot areas for Universal Credit (Oldham, Tameside, Warrington and Wigan)