Can I use lodger income to offset the tax on my mortgage interest payments?

housesitter

I may well have gotten this idea upside down and not exactly the right way round.

Am I right in thinking that LL's can avoid paying the tax on a portion of rental income which is used to pay off the interest on a mortgage on their property?

Would this apply to a lodger. If I'm taking in two of them, I'd be beyond the threshold of 4250, so have to pay income tax on the rest.
Could I offset that tax against the interest portion of my mortgage?
So effectively still not paying any tax?

If I have to setup a company in order to do that, does it cause a problem that the house would be in my name and not the companys?

Planner

Have a look at http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017804

m1ntie

No - you can either opt for fixed tax relief under the rent a room scheme (£4250) or do detailed accounts offsetting all allowable expenses.

You should be aware that if you have more than 1 lodger you will lose some of your principle residence relief for capital gains tax when you sell your house.

Also make sure your insurer is aware and it is noted on the policy - very few insurers allow 2 or more lodgers.

housesitter

hmmm

One of the lodgers is actually my partner. However since they are not on the mortgage as I do not know otherwise (if there is another way I'd love to hear about it!) I have to treat them as a lodger for the purposes for taxation.

I suppose they could pay for all the bills instead of "rent", but then I would still be benefitting so how would that be seen (it's an obvious loophole so I'd imagine a non-starter) ?

If I only had the two lodgers for 24months and have no intension of selling before 10years, is the CGT really going to be huge? Is there a sliding scale?

silvercar

Why would your partner pay you rent. Sureley you would have a degree of joint finances if you are living together?

I would think you have one lodger and one partner.

Rick62

Agree with silvercar, your partners money to you is a domestic arrangement, not a business. i.e. he is not paying you rent for a room, he is contributing towards your costs in the property that you jointly live in.