Tax back on rental income

NotFrugalEnough

Hi.

My brother and I have just jointly bought a four bedroom house (with a mortgage) which we intend to live in while renting out the other two rooms. The amount we charge will also include bills.

I understand we'll have to pay income tax on the amount we receive, so is there any way to claim back any of this? We will be buying a house-worth of furniture, as well as doing some interior work.

Would it be worth our while starting a business to receive the rent?

Any help will be gratefully received.

Thanks.

LittleVoice

Have you looked at the Rent a Room scheme. See here - http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017804 = as a starting point.

NotFrugalEnough

That's a good starting point.

However, we'll be charging a rental amount which includes bills, so I think we'll be better off declaring income/expenditure at the end of the year. Otherwise, we'll be paying tax on bills as well as rent.

Has anyone been in a similar situation before? What kind of things can we claim as taxable expenditures? I assume it would be a percentage of the bills since my brother and I are living in the property as well?

We also intend to install a ground source heating system to the property which I understand may be tax deductable (as well as having grants available).

CLAPTON

you need to distinguish between two types of tax and two types of expenses... i.e. income tax on the rent less allowable running costs
and capital gains tax (when you sell) less allowance 'capital' types costs

basically, against rent income you can deduct 'maintenance' costs i.e. repairs / replacements or you can deduct a 10% ware and tear allowance and costs of letting i.e. advertising, agents fees etc

and against capital you can allow things like initial furnishing, initial decorating, new kitchens, boilers bathrooms etc. that were doen to make the place 'letable'.
so if you are putting in a new boiler then it depends... if its a definite improvement then its a capital cost and so not allowable against rent but if the old one has packed up and you are simply replacing it then that might be alright.