tax with lodgers

Guymitchell_2

Hi

I live in my house and have a lodger. I understand that there is a threshold of approximately £4600 per year on rental income that you do not have to pay any tax if you live in the house too. is this correct? do I have to declare it anyway?

Also supposing I got a 2nd lodger, could they just pay the bills instead of paying me rent? is that allowed?

cheers

harryhound

http://www.hmrc.gov.uk/helpsheets/hs223.pdf

Lots more references to "Rent a Room" via any wll known search engine.

Originally introduced in 1992, when the housing market was still in recession after about 3 or 4 years of serious repossession totals.
I think it is still 4250.per year.

It is a tick the box and get the allowance type situation. There is nothing to stop you all running a kitty for expenses BUT the rental total is a maximum of 4250 per home involved. - not a lot these days.

Guymitchell_2

Thanks for the link although that's exactly the kind of government information that makes me scratch my head with a confused look across my face. The if, buts and what if's are seemingly endless.

i came across a government page that says this;
(i would post the link but im not allowed due to spammers...thanks spammer)

How to opt in or out of the scheme


If you want to opt in

• if you don't normally receive a tax return and your receipts are below the tax-free thresholds for the scheme, the tax exemption is automatic so you don't need to do anything
• if you wish to opt in and your receipts are above the tax-free threshold, you must tell your Tax Office - you can do this by completing a tax return and claiming the allowance

.....i think this applies to me. My lodger pays me 360 a month or 4320 a year all in...which includes council tax, utilities so counting expenses is well bellow the 4250 limit so I guess I don't need to worry about it.

Can anyone tell me if i still need to declare it even if I won't end up actually paying tax? or more to the point, do i need to scratch my head with a confused look on my face whilst i fill out impossible forms?

cheers

Guy

harryhound

I think it would be a good idea to separate out the shared expenses from the rent. That way you would have a nice series of payments that add up to less than the rent a room allowance. That way you would stay strictly within the letter of the tax rules and not need to get sucked into self assessment.

00ec25

sorry but that is wrong
the £4,250 applies to the TOTAL INCOME (not rent) received, whether it relates to rent, you charging for food/meals you share with them, you charging for doing their laundry or their contribution to your expenses, council tax etc.

Your receipts total £4320, you are £70 over the limit and must pay tax on that £70 at your marginal rate (20% or 40%).
You will therefore need to do a self assessment tax return and declare this total income on the UK Property pages of the SA return using boxes 1, 18, 35 and 38 if you choose option a) or you could do option b) (shown below) which will require you to complete more boxes!

You are not allowed to "hide" extra income by claiming it as contribution to expenses.

The rent a room scheme has only 2 options:

a) claim £4250 exemption and pay tax on every penny that the lodger (or lodgers) pay you in excess of 4250 per year. If, in your example, second lodger pays your bills, then you have received money from that person and must pay tax on it. As you yourself posted, only where your total income is below 4250 do you have the ability to do nothing, in your case you are required to complete a tax return because you are above the limit and must "opt in" actively to claim the exemption

or

b) opt to do a "normal" tax return where you cannot claim the exemption but can deduct all and any allowable costs to give a net income which will then be taxed. Only if you do this method can you apportion costs and, in respect of council tax, unless the lodger means you have lost single person discount you, as a resident landlord, have not incurred extra cost so cannot claim a portion of it just because you now have a lodger in addition to yourself and your partner. Only if you are alone then you can claim the 25% SPD you have lost. Obviously utility bills are allowable, but your apportionment basis must be realistic