How to give yourself a £12,500 payrise

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How to give yourself a £12,500 payrise

If you own your own home, bringing in a lodger or two can be a great way to increase your income and turbo-charge your path to early retirement. I did this for a year or two and I was almost covering my mortgage with two lodgers. This means I was living in a house that was being paid for by passive income from my housemates.

But the really great thing about bringing in lodgers is that the income can be tax free under the Rent a Room scheme. This is effectively a massive tax perk that very few people make use of.

Say hello to the Rent a Room scheme

Under the Rent a Room scheme, you can earn up to £7,500 per year tax free from renting out the spare rooms in your home. Assuming you earn the maximum of £7,500 per year, that’s roughly equivalent to giving yourself a payrise of around £9,500 (for a basic (20%) taxpayer) or £12,500 (for a higher (40%) taxpayer).

If you’re buying a house on your own (as I was) I think it’s a no-brainer, as you get a very useful financial boost – let’s face it, buying a house is probably the biggest financial undertaking you’ll ever make – as well as the extra company and help around the house.

Good lodgers can also become great friends – I can personally vouch for this – and the experience can also broaden your horizons and open up new opportunities.

Tips for taking in a lodger

  • Draw up a Lodger’s Agreement

This should set the boundaries and ‘house rules’ from day one, so as to avoid any disagreements further down the line. Don’t forget to include details of cleaning duties!

  • Don’t ignore your instincts

If someone gives you the creeps or something just doesn’t seem right but you can’t quite put your finger on it, just move on to the next applicant. Don’t rush to get someone in there – there will always be other potential lodgers out there, and don’t forget you’ll be living with this person!

  • Don’t be afraid to pay to advertise the room

Some websites, such as Gumtree, offer free ad listings. But if you’re looking to get someone in quickly it’s often better to pay to give your ad a boost up the rankings. Sites such as are another great option.

  • Make sure you understand the rules

Live-in landlords who take in lodgers are subject to much less regulation than buy-to-let landlords. However, there are still rules that you’ll need to abide by. Check out the government’s own website and make sure you’re up to speed with everything before you take anyone in.

  • Get your lodger(s) to set up a standing order

A standing order is an instruction to a bank to make a regular automatic payment. This means you won’t have to physically ask your lodgers for the cash every month, which can save you a lot of trouble and effort.

Don’t fancy taking in lodgers? How about AirBnB?

Depending on where you live, AirBnB could be another option. This gives you the added flexibility of being able to choose when you have guests, but it is also more akin to running your own business, as you have to maintain a certain level of service in order to maintain your user rating.

I haven’t used AirBnB myself, but I have a friend in London who does very well through renting out a room in his flat to tourists.

It’s also great to know that income received through AirBnB also qualifies for tax relief through the Rent a Room scheme if you’re offering a room in your primary residence.

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