Sharing a home with a stranger isn't everybody's first choice but, with the tax breaks available, taking in a lodger can be an easy way to raise extra cash.
The process of renting out a spare room has become much more flexible, with a range of services offering to make this a viable way for you to make money.
One new website, BedandFed.co.uk, for example, helps you to find overnight guests on the proviso that you provide a simple supper, bed and continental breakfast.
"You can make your room available as little or as often as you want so you're not hounded by phone calls all year round," says Annabella Forbes, the founder of BedandFed. "We've created a very personable service and encourage people to ring the host directly so that it's not all automated and anonymous."
What you charge is at your discretion, but the average nightly rate is £35 per person. You're also in control of when you take in visitors by updating an availability calendar on the website. So if you want business only on weekends or for a special event such as the Olympics, you can limit availability to these periods. This is a far less formal arrangement than an actual bed and breakfast – you advertise your room and guests get in touch if they want the room and all you pay is £70 per year to list on the site. Other sites work slightly differently; for example, Crashpadder.com is free to advertise your room but the site takes a 10 per cent cut that your guest pays when they book your room.
The potential income from renting out a spare room is impressive, not least because of the tax breaks. The average annual room rent is £4,576, and as part of the Government's Rent a Room scheme, up to £4,250 of this income is tax free. As a higher rate taxpayer you would have to earn more than £7,000 to net the same amount in your pay packet. This incentive isn't only for homeowners either – tenants can also take advantage of the scheme if they have their landlord's permission and check that the terms of their lease allow it.
If you want a more permanent arrangement, finding a long-term lodger is relatively simple and you can advertise your room for free on sites such as SpareRoom.co.uk.
"More people than ever are taking in lodgers, particularly during these tough economic times when budgets are tight, as it really is a simple and tax-efficient method of boosting your income," says Matt Hutchinson, director of Spareroom.
If the idea of a full-time lodger puts you off, you can also choose to rent your room during the week only through sites such as MondaytoFriday.co.uk which charges homeowners £29.95 for three months and matches them with professionals wanting to rent a room during the working week only. This type of service is ideal for those working long hours in the City, or for those with a long commute who need an occasional place to stay and contract workers needing a short-term rental solution. And as for homeowners, they can earn some extra cash but get their house to themselves for the weekend.
Where you live will affect how much you can charge and how popular your spare room will be. If you live near a university or college, you should find plenty of demand from students and staff members. If you live in the City, you can charge more – the average annual room rent is £7,176 in London – but remember that this will affect your tax liability.
Despite the monetary benefits, having a lodger isn't entirely without its regulations and implications so it's important to know exactly what you're getting yourself into before you taking the plunge.
Unlike tenancies, there are no statutory rules governing lodgers and they have little protection if you want to evict them. But you should still draw up your own contract including how much the agreed monthly rent is and any notice periods you want to give.
"Always get something in writing between you and your lodger stating the terms of your agreement with them. Inexpensive lodger agreements such as Lawpacks can be downloaded online," says Mr Hutchinson.
An important thing to note is that if you own your home with a partner you do not enjoy double tax relief – you will instead be entitled to half the allowance each. Within this allowance you must also include any other payments received, not just the rental income. So, if you charge extra for food and this takes you over the £4,250 threshold, you will have to pay income tax on the difference. Having a lodger also affects your eligibility for a single person's council tax discount. At 25 per cent this loss will eat into any profit so factor this in before you take anyone in.
There are rules governing the type of space your lodger inhabits too. The property must be furnished and used as your main residence. Holiday homes, buy-to-let properties and homes that have been converted into separate flats do not qualify. Instead, your lodger must occupy just one room or an entire floor. Health and safety standards must be met too, including having a gas safety check. And if you plan to take on more than one lodger, your house will become a house of multiple occupation (HMO) which entails various expensive requirements.
You will need to check with both your mortgage lender and home insurance provider. Some insurance companies may refuse to offer cover altogether if you have a lodger unless you exclude their room and any damage they cause from the policy. Others may continue to offer cover and won't necessarily increase premiums but you will need any potential lodgers to declare they have no criminal record and they will need their own contents cover. "Not all insurers will be happy to provide cover for a lodger and those that will judge the additional risk on a case-by-case basis. Costs for adding this to a policy will vary from insurer to insurer," says Julie Owens, head of home insurance at Moneysupermarket.
If you find that your existing insurer is not able to continue to provide cover, you might have to look for insurance from a specialist broker who can tailor cover to suit your circumstances.
"Contacting the British Insurance Brokers Association (Biba) is a good place to start when looking for an alternative policy," says Ms Owens.
Yvonne Taylor has taken in guests at her south Devon cottage for the past five years. The retired university lecturer, 65, started by helping out her local pub by taking in the occasional person, but now has guests staying one or two nights a week.
"I've met a lot of interesting people as a result and all have respected my home," she says. "Many of my bookings are repeats." She has signed up with BedandFed.co.uk and offers B&B and evening meal for £25 a night. "That's enough, I think. We tend to rip people off in Britain so I like to offer good accommodation at a reasonable price.
"This is not my main source of income, but it's a useful way to make some money. My advice for anyone thinking of doing it is ask whether you're happy to open your home to strangers."