Tax implications of renting to multiple lodgers below market rate

Vigil wrote: »

@saajan_12 Ok, this is the aspect that wasn't obvious to me - so if I used the expense-deducting option then I would only be able to deduct expenses related to the lodgers' use (where e.g. proportional division would be a reasonable approximation). Good to know. Insurance is also listed as something deductible - would the insurance I could deduct just be the extra cost related to having the extra people?

as explained, if you use RAR then you can deduct £7500 from the gross total of rent received from all 4 lodgers. It is not an allowance per lodger, it is an allowance against your total income

if you do not use RAR, and therefore use the "normal" method there is no proscribed methodology, but whatever you do must be "reasonable"

that typically means apportionments must be used and must make sense. The 2 obvious ones are number of rooms or floorspace. For tax purposes bathrooms and toilets are not included in the room count but bedrooms. kitchens, lounges/dining room/reception rooms are, so for example in a 5 bed house with kitchen, lounge and dining room you occupy 4 rooms (your be d + 3 communal rooms) and the lodgers occupy a bedroom each so the apportionment would be 4/8 relates to the lodgers so you claim 50% of each bill as the cost against the rental income to calculate your taxable profit.

in respect of your questions:
What are the meaningful differences (if any) in this situation between:
A) Do not charge lodgers for expenses (council tax + utilities) use RAR, deduct 7,500 as tax free allowance
Charge lodgers equally per person for expenses (so I would personally pay 20% of them). I am interested to know if there is any "special case" for this option given that it seems to be the usual one. the charge to the lodger counts as "rent" and will increase your gross income, you can then deduct either the RAR allowance or, if using the normal method, the relevant % of the actual costs
C) Charge lodgers all the expenses (so I pay none) as above

Vigil wrote: »

On HMOs:

Government websites (still no links...) suggests I would only need a license if the HMO were a large HMO (it will not be). I was not aware of requirements to register etc. so I will check with the council, thanks.

Looking at the extra HMO-related responsibilities, most look like things I'd be doing anyway/have anyway, so not too much of a problem. Should check smoke alarms though.

you need to check your own council website because they may have "selective" licensing which applies even where the property does not mean the "large" HMO definition you have found

be careful with the extras, they can be very detailed and quite costly, eg: number of kitchen stoves/hobs per occupant, number of toilets, mains hard wired smoke detectors, fire doors, even fire escapes etc

Vigil wrote: »

I am aware of the CGT implications (renting out proportion of house amounts to losing the CGT exemption for that proportion over that time, minus some additional exemptions), so will not be surprised by that.

excellent, many people miss that as they do not appreciate that the rules change as soon as you have 2 or more lodgers.