Mortgages, lodgers and tax

terryw

Don't get hung up on the tax aspect - this is merely a fact of life with any business idea, and is likely (particularly in the early years) to be relatively small anyway. It is far more important to really gen up on the practical aspects like landlord's responsibilities, obtaining a mortgage and the law regarding HMOs.

Jowo_2

There are two routes for a landlord

Rent a room scheme - no expenses are deductible and tax is paid above the threshold.

or the conventional tax return route where the landlord is permitted to deduct expenses such as insurance, repairs, mortgage (interest only part).

The landlordzone website has information on both. You need to consider if the second scheme exposes you to CGT or not (perhaps others could comment on whether this would apply to residential landlord with 2 or 3 lodgers).

You won't live the good life if you stuff the house full of complete strangers without performing any type of screening or without basic house rules in place, plus you have to allow for personality clashes between them as it's not like its a bunch of friends or a family moving in together. The types of posts we have here from landlords with lodgers cover disputes like rent arrears (and subsequent visits by debt collectors), moving in partners or relatives, theft, being dirty or noisy and so forth.

00ec25

Jowo wrote: »

. You need to consider if the second scheme exposes you to CGT or not (perhaps others could comment on whether this would apply to residential landlord with 2 or 3 lodgers).

correct, there will be a CGT liability when you sell your home because you are claiming that x% of it is a property letting business and therefore x% of any gain when you sell it will be liable to CGT.

That proportion of your property is no longer eligible for exemption under the private residence relief becuase you do not live in it and have let it out (but you would be entitled to letting relief)

MegaMiniMouse

bodmil wrote: »

Thanks Terry. I'm just deciding whether it's easier to buy a swanky 2 bed flat or a family house and get some money coming in. Sounds like it would be worth the effort in the long run.

Hi Bodmil, I tried to PM u, but I don't think it got sent, so I guess I am not authorised to send PM's.

I am currently in precisely the situation which you are contemplating, and I am well up to speed on the tax, HMO, planning, insurance (etc etc!) considerations.

I have made many adaptations to my house so that it is uniquely 'suitable for purpose', and attractive to a wide variety of types of people (so I am able to pick and choose!).

The income from the lodgers easily exceeds the total outgoings on the house.

My house is for sale - which areas of the country are you considering?

MMM

bodmil

Thanks guys. I'm not too concerned about paying tax, it's not as if I want to avoid it if I can make something out of renting out rooms. As I say, I will start with 1 lodger and work up when I'm comfortable with how it's working. I'm still a good 12 months of buying so just getting my facts together now. The property will remain my primary residence for a good few years and I could manage the costs on my own so if worst comes to worst at least I can turf lodgers out without the same hassles as tennants if I wasn't living there.