If you are the owner of a Buy-to-Let property, then perhaps you thought about renting to family members. Although such an arrangement is beneficial, it is more complex than renting to a tenant that is a stranger. A question that often comes up in people’s mind is: is a family member considered a lodger? This guide will discuss that and more. First, let’s discuss the difference between a lodger and a tenant.
Who Classifies as a Lodger?
A person who lives in the same home as the landlord and that house is also the landlord’s primary residence. The lodger must pay the rent to the landlord. Yet, they live or lodge on the same property. Often, lodgers are called licensees as they have a licence to occupy the home of the landlord.
Who Classifies as a Tenant?
Whereas a tenant is somebody who rents a room or an entire home from a landlord. They do not live in the same house as the landlord. Multiple people can rent a single property and occupy individual rooms. The most significant difference is that the landlord does not live on the same property. Therefore, the fundamental distinction between lodger and tenant is that the lodger lives in the same property. While a tenant does not live on the same property as the landlord.
Can You Rent Property to a Family Member?
Yes, you can rent your property to a family member. In fact, it is quite common in the UK. Typically, the parent or parents are the landlord, and their child is the tenant. Perhaps the child also has a partner. Thus, it is not unusual to rent to a family member.
Is a Family Member Considered a Lodger in the UK?
Whether a family member is a lodger depends on the context of them staying on your property. For example, a family member living in your home without any licence agreement and rent free is a house guest. They are not called a lodger. Therefore, a family member must pay rent and have a licence agreement in place to become a lodger.
Can More Distant Family Members Become Lodgers?
Usually, a mortgage provider will not apply special criteria for renting your property to more distant family members. Although you cannot expect that to always happen. If you want to rent to your aunts, uncles, cousins, or even nephews or nieces, you should tell the lender.
Is it Possible to add a Family Member to Your Tenancy?
If your landlord agrees, then you can add a family member to your tenancy. Although there is an exception. You can add them to your tenancy if your house or flat is too small. Then you cannot legally allow another tenant to move in. It does not matter if your landlord is a member of your family. They still need to enter into a formal agreement with the new tenant. Which they can do in either of the following ways:
- They can add a new clause to the current tenancy agreement.
- They can form a new tenancy agreement. You and the new tenant (family member) will sign this agreement.
Please note that the landlord will verify if the new tenant has the right to rent. Additionally, they may run referencing checks. That is, if they want to qualify for rent guarantee insurance. Then, is a family member considered a lodger? Yes, they are.
Is It Possible to Let a Family Member Live in a Second Home Rent Free?
You can let a family member live in your second home rent free if you own it outright. Remember, though, you are still a landlord and must fulfil your obligations and responsibilities. On the other hand, if the property is mortgaged, then the scenario changes. This is because your mortgage provider will not let anyone live in the home free of rent. Affordability tests determine mortgages. Typically, the requirement is of a monthly rent that covers a minimum of 125% of your mortgage payment.
You must think carefully before you let a family member or anyone else on your property be for free. Or even if you consider for an amount less than the market rent. If you are not receiving rent, then you can afford all the expenses. For example, consider maintenance, safety regulations, a new kitchen, bathroom, and any repairs. Therefore, it is best to consider all this before you let someone live in your second home for rent free.
Is it Ideal to rent to a Family Member?
Now, the question arises, should you rent to your family members? There are plenty of advantages and disadvantages to this situation. One of the pros is that you are helping someone you are close to and care about. Furthermore, you can trust them with your property as you have a relationship with them. Plus, you avoid the hassle of looking for good tenants. You may think about avoiding the process of tenant referencing. However, it is better to do so as it can reveal any prior tenancy issues. Not to mention that it is a pre-condition of rental guaranteed insurance.
Remember, you are still legally required to perform ‘right to rent’ checks. You can do them through a landlord checking service. Having a pre-existing relationship also has its cons. It can cause a lot of issues such as you will find it difficult to ask for rent increases. Your family member may pay their rent late because they think it is all right to do so. Suppose things go wrong and you face the issue of having difficult tenants.
You will face hardship in evicting them. If you do evict them, it can affect your relationship with them in the long run. Moreover, there is the drawback of maintenance issues. Your family member may hesitate to inform you about the need for maintenance or repairs. As a result, you will face more expensive repairs later. The opposite extreme is that you may have to stop whatever it is you are doing and fix every minor issue immediately. Thus, you should know the answer to the question is a family member is considered a lodger.
What is a Live-in Landlord?
In a situation where you want to help a family member or even a friend, you can offer them a room in your house. When this happens, you become a live-in landlord. Also, your family member becomes a lodger. Does this affect your residential mortgage or insurance? It is unlikely that it does. Let’s look at a scenario where you are not a live-in landlord. Suppose you separate your house into purpose-built flats. Then, you and your tenant live separately. In that case, you are not a live-in landlord.
Another scenario is if you are not legally a resident of the property. For example, if you rent out a room in your holiday home to a family member. You are still a landlord and must comply with all the legal obligations and responsibilities.
Does Tax Apply on Rental Income from Family?
When you get rental income from your family members, then you must declare it on your Self-Assessment Tax Return. You will end up paying income tax if you gain any profit. Additionally, you will also pay for national insurance. Is a family member considered a lodger? Yes, they are.
Do You Need Landlord Insurance When Renting to Family?
The short answer is yes, you do need landlord insurance even if you are renting to a family member. A standard landlord insurance policy includes public and employer’s liability insurance. Additionally, it involves building and contents insurance. You must bear in mind that visitors will come by. For example, electricians, plumbers, any other workmen. This requires public liability insurance in place. Moreover, you should add the following to your policy:
- rent guarantee insurance.
- landlord legal expenses cover.
With the help of this insurance, you get protection in case your tenant does not pay rent. It also covers legal costs. For example, serving eviction notices.
Is Having Landlord Insurance a Legal Requirement?
No, it is not a legal requirement for you to have a landlord insurance. Nevertheless, your mortgage lender will tell you to get building insurance at least. Despite what you think, you may need landlord insurance with family members as well. Suppose your child lives on your property and so does their partner. If their relationship comes to an end, then their partner may live alone on your property. Thus, you would need standard landlord insurance in this situation.
If they do not live rent free, then yes. It does not matter that you receive rent on an irregular basis. You are still a landlord and therefore you need a written contract and the right insurance. Yes, you are their family member, but you are still their landlord. A tenancy agreement is beneficial for you both. Remember, as a landlord, you need to comply with legal obligations. This includes issuing the necessary paperwork, much like you would do for any other tenant or lodger.
To summarise, you can rent your property to a family member. If they pay rent and hold a licence of agreement in place, then they are a lodger. A lodger is anyone who rents out your property and lives with you, the landlord. Even if the lodger is a family member, you have the responsibilities of a landlord. Make sure to fulfil them.