Renting rooms in my house please help

stanandollie

Hi Everyone

New to this so apologies if I have posted on the wrong forum.
Please can someone advise me, I have been renting 2 rooms out in my house (I live there) to 2 guys whom are claiming housing benefit, they both pay me £100 p/w.
I have only just been told by a colleague that I need to declare the income to the IR.
I have rented the rooms since April 2009
I honestly thought that renting rooms in your own home was OK, I spoke to the housing benefit people about the lodgers and they said I could do this but stupidly I did not think of tax implications!
The rent I recieve from the lodgers is not as much as the interest on my mortgage (financial problems mean I am paying interest only) which is £920 pm, when I explained this to the colleague who informed me about the tax implecations she said that she had heard that if you have an interest only mortgage you can off set the rental against it, is this is the case I should not have to pay tax right?
Does anyone know?
Also, am I going to get a fine? I am going to call the IR on Monday to discuss with them but can not stop worrying!
Apreciate any help on this

Obukit

Hi Stan,

Unfortunately you do need to declare this as the Rent-a-room scheme, where you don't need pay tax or declare lodgers, only applies for a maximum of one lodger, and income up to £4,250.

As you said, you can offset two-thirds of the mortgage interest, bills etc., plus a 10%pa allowance for wear and tear, however, be aware that if you are offsetting mortgage interest against tax, you also lose the right to have the proportion you offset of your home free of capital gains tax, a benefit you normally get on your primary residence. Hence, you will have a hefty CGT bill to pay when you move. You really need to speak to a financial adviser about this as they are better qualified to advise you on the most advantageous way to arrange everything for you.

Regarding Inland Revenue, I wouldn't worry too much as everything is within this tax year. Just give them a call and explain the situation, they're normally very helpful and will advise you what to do.

getmore4less

Can you do rent a room for one lodger with costs offsetting on the other.

check with your tax office what the options are and what will be acceptable/best overall.

clutton_2

hi - you really need to talk to the revenue and also an accountant... you also need to discover what expenses you can claim, go onto the tax website and look for the IR150 "Taxation of Rents" booklet to show what type of business expenses you can ofset against your rental income....

if you are making a loss you may be able to carryit foward to the next financial year... but ... tax returns need to be in by 31 January.... so get a move on !!! if you dont do a return by then, you may well be fined....

PasturesNew

The Rent a Room Scheme is easiest to administer.
£100/week x2 = £10,400 per year
Under Rent a Room you're allowed £4,250 of it tax free.
£10,400 - £4,250 = £6,150
So you'd pay tax at your highest level on £6,150. If you currently pay tax at 20%, then you'd pay £1,230 tax/year. If you currently pay tax at 40%, then you'd pay £2,460 tax/year.

To do that, for the period April 2009 to March 2010, you'd need to fill in one simple sheet on a tax return form. This would need to be done/submitted (and tax paid) by 31 January 2011 (if you do it online), if you actually fill out a physical paper form then it has to be done by the end of Sep/Oct 2010 (I can't remember the date).

Tax office would be able to help you and it's nothing to be worried or scared about, it's just a simple form giving a couple of figures ... and a cheque for the tax.

PasturesNew

clutton wrote: »

tax returns need to be in by 31 January.... so get a move on !!! if you dont do a return by then, you may well be fined....

The OP said they'd been renting the rooms since April 2009, so that's tax year 2009-2010, which we're still in. They have another year.

clutton_2

thanks PN - i had not taken on board the timings....

OP do look at the expenses reference i drew to your attention.. you may not have to pay much tax as you think...

stanandollie

Thank you for all advice given, as I have never done anything like this before I am still a bit confused and daunted by it all, I wish I had of known all this before i took the lodgers on,

I have only this week gone into debt management with the cccs, what with all of that and now this its all a little too much to be honest!

Do I have to see an accountant? money is really tight right now, also is it correct that I wont have to pay the tax until 2011? if so at least I have breathing space,

So I have to ensure that the tax offixe gets a decleration before the 31st Jan, do you think I would be OK just to call the tax offixe and have them talk me through it,

The person who put all the calculations together stating that I will have to pay tax on the £6000+ put it in a very straight forward way which I understood I think, I earn 36K per annum so am paying 20% tax

Will the tax office help me fill in the form to my advantage so I only pay the smallest amount that I have to?

Fire_Fox

The tax office can give you basic advice and booklets which explain what expenses are allowable etc. but you do need to be confident/ competent in order to do the first tax return. You could probably get an accountant the first year, and then simply copy what they have done thereafter, slightly amending the figures.

Presumably you are declaring the extra income to CCCS too? You can also declare any costs to them, so any tax and accountancy fees. I *think* that you can have the tax taken off your wages for the following year, basically your personal allowance is adjusted which might also help you budget?

orangeslimes

stanandollie wrote: »

Do I have to see an accountant? money is really tight right now, also is it correct that I wont have to pay the tax until 2011? if so at least I have breathing space,

you don't have to- but it would be a good idea. and yes the tax will be due in 2011

So I have to ensure that the tax offixe gets a decleration before the 31st Jan, do you think I would be OK just to call the tax offixe and have them talk me through it,

I don't think 31 Jan is relevant really. Just phone up the tax office asap and explain the situation.

Will the tax office help me fill in the form to my advantage so I only pay the smallest amount that I have to?

Not really. That's why an accountant is advisable.
It might even be that you are making a loss and can claim tax back. Remember to keep receipts for any relevant expenses- i.e. repairs etc.

stanandollie

Thanks and yes cccs know about the extra income, the reason jan 2011 is favorable is because i would not be able to find the tax owed this month which would have been a huge problem
Anyone know of a good accountancy that does not cost the earth, how much will it cost me anyway?