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I have two friends living with me and they only pay bills (no rent) and I wondering if I would be liable for CGT on the period they live there? I don't take any rent from them at all and they are just friends staying in my house.

So, in HMRC's eyes, what is the definition of a lodger and specifically does it ever differ from a friend staying rent free in my house?

Also, in the definition of a lodger, if I let a room to a couple on one room lodger agreement does that count as one lodger or two? (This has extremely large implications on CGT because having two lodgers makes the time they live there liable to CGT)

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2 Answers 2

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Ignoring any Income Tax aspects (which weren't part of the original question) and considering Capital Gains Tax...

HMRC Internal Manual CG64702 refers to Statement of Practice SP14/80 and comments "You should not consider any restriction of relief where there is a single lodger but should consider doing so to an appropriate extent where there is more than one lodger" [emphasis mine].

A single lodger is not a problem in respect of Capital Gain Private Residence Relief. Two lodgers may affect entitlement to that relief.

The definition of lodger seems to be covered by SP14/80 too. It states "Where a lodger lives as a member of the owner’s family, sharing their living accommodation and taking meals with them, no part of the accommodation is treated as having ceased to be occupied as the owner’s main residence, and the exemption is not restricted at all." [emphasis mine].

...if I let a room to a couple on one room lodger agreement does that count as one lodger or two?

I would be expect a couple to be two lodgers as a matter of fact, regardless of how some agreement might describe matters.

The above is only my rough understanding and I could only find that two lodgers might jeopardise the private residence relief.

Given the potentially large amounts involved please take some expert advice from a tax advisor.

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  • I have just noticed this question is over 5 years old. For some reason it was at the top of the Active Questions List, so I just answered it. Sorry if this was too late to be useful.
    – Steve Kidd
    Commented May 11 at 17:37
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    Thanks for the comprehensive and properly caveated answer. I decided myself to have just one lodger as a result.
    – atreeon
    Commented May 14 at 8:04
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You only need to worry about tax if they are paying you rent. There is no tax implication of your friends staying rent free.

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  • And if they are paying rent, you have to worry about what happens if the outstay their welcome but don’t want to leave.
    – gnasher729
    Commented Jul 16, 2023 at 10:25
  • @gnasher729 I don't know about the UK, but in the districts of the US that I'm familiar with, "squatter's rights" are not changed by having ever paid a rent for the space. In some states they've even extended these rights to people who were originally trespassers into vacant spaces. In the most owner friendly districts, you'll have a minimum of 30 days after vacate notice before the authorities will even consider getting involved. What matters is a history of living there; where they "rest their head", not paying rent.
    – user26460
    Commented Aug 16, 2023 at 16:06
  • @user26460 Presumably the two friends moved in with the OP's consent, so we're not talking about squatters anyway.
    – JBentley
    Commented Sep 14, 2023 at 14:15
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    Correct me if I'm wrong, but this answer seems to assume that the question is about income tax, but it's actually asking about capital gains tax. For the latter, there can be tax implications of friends staying rent free. What actually matters is whether the OP lives in the property as well and shares living space with the friends, not whether they pay rent.
    – JBentley
    Commented Sep 14, 2023 at 14:17
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    @gnasher729 Generally, lodgers (people who live in the same home and share space with their landlord) do not acquire assured shorthold tenancies in England, which means they have far less eviction rights and, provided you haven't messed up your contract drafting, you can simply change the locks after giving a short written notice, without going to court.
    – JBentley
    Commented Sep 14, 2023 at 14:21

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