Declaring rental income...had no idea, help!

Buzzcut

Hi All,

I'm glad places like this exist as I'm in need of some advice if I may?

Here's my problem... I live in a 2 bed flat which is in mine and my ex-girlfriend's name. She moved out a couple of years ago, my friend was needing a place to live so we got him in to help with the mortgage.

He's just moved out and was here for 2 years, pretty much Apr 07-Mar '09. I mentioned how the rent was going to be missed to another friend and he says "I hope you declared it in your yearly tax return....".

That's when my mouth dropped open in horror. I naively had no idea that rent was classed as income and had never heard of the Rent-a-Room scheme.

I obviously want to put this right and pay my taxes, I don't fancy going to prison or having a criminal record! How much trouble am I in?

Now come the figures..he paid me £6,500 a year in rent minus £4,250 allowance = £2,250 taxable income per year. From what I've read this allowance is split between the joint property owners so I'm liable for tax on £1,125 for 07-08 and 08-09 as is my ex?

My question is what is my next move? Do I call, write a letter or fill out a form online, I really have no idea about how to pay these back-dated taxes. Should I just deal with my part of the income and get my ex to contact them as well or just report both parts?

I guess we'll both get fined a % of the value of the tax we need to pay (for me 40% of 1125+1125 ~ £1,000)..any idea of the %?

As I say, I can't believe I've been so naive in this so any help as to the next move would be great. I could just risk it and leave it but I don't fancy getting a bill in 10 years time, I'm sure everyone gets caught by Big Brother eventually!

Thanks...Buzz

theartfullodger

Work out your money-coming-in and money-going-out (if any) associated with renting out, (roughly) for each relevant tax year then 'phone your Tax man and tell him about the situation and would he please kindly send you self-assessment forms for those years so you may report all income correctly.

Explain that you have only just become aware you should report, you were surprised and shocked to find this out & your first thought naturally was to 'phone the Tax man.

Alternatively hide, pretend you didn't do it and I'd guess (and hope..) that the investigators at HMRC will have tracked down your ip address etc. and will send the boys round.. (Unlikely!). Seriously, chances are one way or another they'll find out so work with them!

There are a fair number of expenses you can claim.. see Carl Bayley's "How to Avoid Property Tax

" £23:70 from Amazon..

Cheers & welcome to the club of honest tax-paying Landlords..

Cheers!

Icey77

Buzzcut wrote: »

Now come the figures..he paid me £6,500 a year in rent minus £4,250 allowance = £2,250 taxable income per year. From what I've read this allowance is split between the joint property owners so I'm liable for tax on £1,125 for 07-08 and 08-09 as is my ex?

Ummm, I believe once you cross the threashold of the rent-a-room scheme you are liable for tax on the whole lot - you are liable for tax on the while £6500 not just the difference!

I can only suggest calling up HMRC and asking them how to go about sorting this out - even though you are going to them voluntarily you could still be fined and charged interest on the late tax unfortunately.

Good luck and let us know how it goes

bobby-boy_2

Now come the figures..he paid me £6,500 a year in rent minus £4,250 allowance = £2,250 taxable income per year. From what I've read this allowance is split between the joint property owners so I'm liable for tax on £1,125 for 07-08 and 08-09 as is my ex?

Did you give half of the rental income to your ex?
Don't think she can claim rent a room if she is not living there.
If you are renting to someone in a property you are not resident in then its Rental income and all of it after expenses is taxable.

Download the self assesment form and check the notes.

poppysarah

Or ring them up and ask. They are helpful!

m_13

It's good that you've discovered this before they catch up with you.

From the direct.gov.uk rent a room page:

The advantages and disadvantages of the scheme
There are advantages and disadvantages of the scheme - it's simply a matter of working out what is best for you.

The principal point to bear in mind is that if you are in the Rent a Room scheme you can't claim any expenses relating to the letting (for example, wear and tear, insurance, repairs, heating and lighting).

To work out whether you will be better off joining the scheme or declaring all of your letting income and claiming expenses on your tax return you need to compare the following:

• how much income you are left with after your expenses
• the amount of your receipts (rent plus any income from laundry services, meals, etc) over £4,250 or £2,125 if letting jointly (2008-2009 tax year)

If you opt out of the scheme (or simply do nothing) you will pay income tax on the first amount. If you opt into the scheme you will pay tax on the second amount.

I'd work out whether you want to join the scheme or not before you ring them up.

Buzzcut

Thanks for the comments guys, it's much appreciated. I'll give them a call this afternoon for some advice.

We're talking no expenses and no food just rent, he was a friend who lived in my spare room and did his own thing...I think it's best to opt in to the scheme as I never had to repaint etc.

bobby-boy's comment has confused me....one one hand even though my ex wasn't living here, she still owns 1/2 the property and the rent was covering her half of the mortgage so to my mind we were joint letting....hmm. As you say though she's not livign her so can't claim Rent-a Room

Hopefully it would be considered that I was single letting with an allowance of £4,250, half his rent would be mine i.e. £3,300 per year and hence I'd need to do nothing as it's under the limit. My ex however would also be getting the other half i.e. £3,300 but would be taxed fully as for any other extra income but that's not my problem.

I'll let you know what they say, at least the money is still in my savings and not blown on a new car.....

Robert_Sterling_3

I think I might have let my friend stay with me for nothing or for something which was tax efficient.

Buzzcut

Well it was actually him who inisted on giving me the going rate for the room not me.

Thanks for the inferred presumption of greed anyway, it's most appreciated.

socrates

Buzzcut wrote: »

Well it was actually him who inisted on giving me the going rate for the room not me.

Thanks for the inferred presumption of greed anyway, it's most appreciated.

Read between the lines - jeeez!

Buzzcut

OK...apologies for the knee-jerk reaction, I'm a little rattled at the moment.

I did think of that but surely that kind of embelishment makes things worse?