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Lysimache
Posts: 192 Forumite
Just getting head around RAR.
1. Is the only time it's worth not using the RAR allowance and instead doing expenses vs income accounting is if your expenses exceed £7.5k (or if you're making a taxable loss subletting eg if an epic array of disasters hit your property)? As rent a room allowance is effectively giving you £7.5k worth of expenses and not letting you add any more, right?
2. A separate question: If you also have a BTL, can a 'loss' on subletting be set aside against 'profit' on a separate BTL? Obviously you couldn't use RAR if you wanted to generate a loss, but just wondering if all property loss and profit can be combined even if it's subletting too? (I know all BTLs loss and profit can be combined)
3. If you do subletting a room on a profit/loss basis rather than RAR, can you claim expenses during void periods?
Thanks!
1. Is the only time it's worth not using the RAR allowance and instead doing expenses vs income accounting is if your expenses exceed £7.5k (or if you're making a taxable loss subletting eg if an epic array of disasters hit your property)? As rent a room allowance is effectively giving you £7.5k worth of expenses and not letting you add any more, right?
2. A separate question: If you also have a BTL, can a 'loss' on subletting be set aside against 'profit' on a separate BTL? Obviously you couldn't use RAR if you wanted to generate a loss, but just wondering if all property loss and profit can be combined even if it's subletting too? (I know all BTLs loss and profit can be combined)
3. If you do subletting a room on a profit/loss basis rather than RAR, can you claim expenses during void periods?
Thanks!
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Comments
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If you're expenses exceed £7.5k you're doing them wrong to be honest!
You cant have a BTL and use RAR.
Yes you don't pay tax per property, you pay tax overall, so you can deduct losess etc.
You keep saying subletting, why??
It sounds like you aren't really getting lodgers, but tenants. So maybe you can explain what you hope to achieve and what the situation is0 -
Sorry for not explaining clearly.
Essentially, have a BTL for many years and understand that system of profit/loss etc. That's got tenants in it, no subletting.
I'm now looking to sublet in my main residential home and just trying to understand when it's not worth using RAR.
Also trying to get head around if I have a 3rd room that I'm subletting out, are void periods considered expenses in terms of the % floor space of mortgage interest/bills etc or not? In a BTL void periods are effectively losses that you can deduct from your rental profits at other points. Hence my wondering if subletting losses can emerge from void periods, and then if they can be set against the BTL property's profit.0 -
Ok stop saying sublet. It's not what you think it is.
Assuming you charge no more than £625 per month for the room (including all bills) you will almost always be better using the RAR scheme. The reason is simple. The expenses you can claim are limited, and would never realistically reach £7,500.
Void periods are not expenses. (ever, even in your tenanted property)
Expenses are costs you pay, as a result of having a lodger.
Im fairly sure that you cannot claim mortgage interest as an expense when you have a lodger at anyrate.0 -
1. Thanks, comms69, for letting me know the verb for having lodgers in isn't subletting.
2. I see, void periods cannot give rise to expenses.
3. Re mortgage interest expenses when having lodgers, I was going on this: https://comanandco.co.uk/rent-a-room-relief
"The first method is to calculate profits by deducting from rental income a proportion of the costs of providing the accommodation. The apportionment is based on the floor area used by the lodger. Costs are likely to include mortgage interest, council tax, buildings insurance, water rates, light and heat."
So I was thinking if you did the sums on an expense basis, one expense would be bedroom floor area % * mortgage interest etc.
4. I might be looking at getting about £8-9k from the room as income, whereas the expenses are unlikely to hit anywhere near £8k. Hence wondering about whether there's any other benefit to not being in the RAR if I also have a separate BTL.0 -
1. Thanks, comms69, for letting me know the verb for having lodgers in isn't subletting.
2. I see, void periods cannot give rise to expenses.
3. Re mortgage interest expenses when having lodgers, I was going on this: https://comanandco.co.uk/rent-a-room-relief
"The first method is to calculate profits by deducting from rental income a proportion of the costs of providing the accommodation. The apportionment is based on the floor area used by the lodger. Costs are likely to include mortgage interest, council tax, buildings insurance, water rates, light and heat."
So I was thinking if you did the sums on an expense basis, one expense would be bedroom floor area % * mortgage interest etc.
Fair enough, it's not going to amount to more than £625 at any rate, so little point in not using RAR
Subletting is when you provide the whole property to another party, but where you are not the 'top' of the chain.
So if I rent a flat, I can sublet it to my friend. It's layered renting.0 -
£700 for a room, get a 3 bed with garden and garage around here for that!4. I might be looking at getting about £8-9k from the room as income, whereas the expenses are unlikely to hit anywhere near £8k. Hence wondering about whether there's any other benefit to not being in the RAR if I also have a separate BTL.
Well your 'default' tax charge will be £1,600 on £8,000 income.
I suppose you just need to work out if you can get enough expenses to balance it out0 -
Ok stop saying sublet. It's not what you think it is. - yes, OP means they have a lodger.
Assuming you charge no more than £625 per month -
No, the rent charged is irrelevant, the point is upto £7500 is deducted from lodger income so the comparable would be if expenses exceed the £7500pa (£625pm) for the room (including all bills) you will almost always be better using the RAR scheme. The reason is simple. The expenses you can claim are limited, and would never realistically reach £7,500.
Void periods are not expenses. (ever, even in your tenanted property)- no but the usual charges which occur during tenanted and/or void periods e.g. agent fees, service charge, repairs, GSC, energy costs, council tax can be an expense of the BTL business. In the same way that a shop can deduct overhead costs for the hours they don't have customers.
Expenses are costs you pay, as a result of having a lodger.
Im fairly sure that you cannot claim mortgage interest as an expense when you have a lodger at anyrate.
that depends on the intention, you could argue that you purchased (and hence took out a mortgage for) a larger property for a dual purpose, to as a personal residence and to generate lodger income. As such, a portion of the mortgage interest is an expense in the same way as a BTL.0
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