Lodging a room. Paying Tax on rent?

neas

Hi all,

running the idea around of buying a house and renting/lodging a couple of the rooms out to friends or friends of friends etc.

How does this work with tax?

I've read about the rent a room scheme where you have 4,200 pounds tax free income a year.. (altho i'd expect to go over that if i rented two rooms).

Im a bit confused with the allowance and how you can offset things like interest against.

For example if I paid 600 on mortgage interest, 100 on council tax, 150 on gas/elec, 50 on water rates a month (900 pounds a month).

Can i offset the income from lodgers against this? i.e if my lodgers paid 900 quid in rent... would i be liable for tax on this?

I've read http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10014027

Which seems to indicate you can claim these expenses for renting rooms out per year:

Rhe expenses you can deduct from letting income (unless it's under the Rent a Room scheme) include:

• letting agent's fees
  
• legal fees for lets of a year or less, or for renewing a lease for less than 50 years
  
• accountant's fees
  
• buildings and contents insurance
  
• interest on property loans
  
• maintenance and repairs to the property (but not improvements)
  
• utility bills (like gas, water, electricity)
  
• rent, ground rent, service charges
  
• Council Tax

If this is true... can i offset 100% of the interest against the lodger income or would it be a fraction of it? i.e. 2 lodgers and myself.. means i can offset 2/3 of mortgage interest against lodger income?

Anyone doing this currently who can advise?

G_M

The link you used seems pretty clear:

"Bear in mind that you can only claim expenses that are solely for running your property letting business. If the expense is only partly for running your business (or if you use the property yourself) then you may only be able to claim part of it."

However, why not call HMRC and ask? They are pretty helpful.

Jowo_2

The rent a room scheme doesn't permit any expenses to be associated with it - the landlord merely pays tax on the sum above the tax free limit. In this scheme, no expenses can be deducted from it.

If you wish to avoid the rent a room scheme in order to take advantage of expenses on your tax return, then you risk being exposed to CGT.

00ec25

neas wrote: »

If this is true... can i offset 100% of the interest against the lodger income or would it be a fraction of it? i.e. 2 lodgers and myself.. means i can offset 2/3 of mortgage interest against lodger income?

need more info as you are being sloppy with your terminology

lodging means it is your main residence in which you live as a resident LL - if this applies and you "lodge" out 2 rooms to mates etc then:
a) you may opt to use the rent a room scheme and will pay tax on every penny in excess of £4,250 pa eg: rent 2 rooms @£300pcm each = 7200pa, Tax payable 7200 - 4250 = 2950 @ your tax rate (20% or 40% as applicable)

b) you may opt out of the rent a room scheme and claim expenses against your gross rent as you have listed. You will pay tax on any residual profut after expenses deductions

c) assuming 2 rooms plus your own then there would be 3 unconnected persons living in the property, you will need to check with the council what their attitude is to House In Multilple Occupation (HMO) as they may (or may not) require you to fit such things are fire alarams etc - you could be fined if you ignore this

if you are non resident then you will be renting it out and the property will be subject to Income Tax on the profit left after deducting expenses as listed (the rent a room scheme is not applicable, you are non resident) and note the property also will be subject to CGT when you sell it

other

neas wrote: »

• letting agent's fees
  
• legal fees for lets of a year or less, or for renewing a lease for less than 50 years
  
• accountant's fees
  
• buildings and contents insurance
  
  
• interest on property loans
  
• maintenance and repairs to the property (but not improvements)
  
• utility bills (like gas, water, electricity)
  
• rent, ground rent, service charges
  
• Council Tax

What is interest on property loans? Is that the amount of interest paid off on the mortgage (not counting the capital paid off?)

So for example if I had mortgage of 10000pa, with 6000 on interest.

I live in the property and rent 1 room to a lodger for 5000pa. Can I then claim the full 6000 property interest on the income from the lodger? That would mean no tax to be paid on the 5000pa lodging income?

But since I also live in the property, is there a reduced amount of tax relief I can claim, for example 50%?

G_M

From HMRC website:

"Bear in mind that you can only claim expenses that are solely for running your property letting business. If the expense is only partly for running your business (or if you use the property yourself) then you may only be able to claim part of it."

However, why not call HMRC and ask? They are pretty helpful.