Rent a room scheme

orsm

Hi guys

Can anyone shed some light on a few questions, I am going to rent out a room in my flat which is a 2 bed, I own the flat with my farther in a 50/50 mortgage. We have seen the rent a room scheme and are aware that I can earn upto £4250 tax free. I am a little bit confused with the (£2,125 if letting jointly) quote on the directgov website, does that meam I can only earn upto £2125 tax free because my dad is on the mortgage with me ? he is not intrested in taking any money from the rental of the room as he only helped me to get on the property ladder. What ever the tax free bracket will be, I will be charging £550 a month with all bills included so will have to pay some tax, do I have to tell the tax office I am renting out my room or do I just fill in a tax form out at the end of the year. Has anyone ever applied for this before ? would they know/ask questions if the mortgage is joint owned or single for the tax bracket.

Thanks

Orsm

00ec25

the fundamental principle when it comes to who has a tax liability against any rental income is who OWNS the property, as the income is attributed to the owners NOT to who shares the payment of the mortgage with you

therefore it is vital that you accurately state if your father has any share of the ownership of the property. If he is simply paying 50% of the mortgage but is not named on the deeds of the property and therefore does not own 50% of it, then you are the 100% owner and 100% of the rental income will be assessed against you. the fact that part of the mortgage is paid by your father in that case is irrelevant for ownership purposes.

Remember that if father does own a share of the flat, then he will be liable for capital gains tax when it is sold, so be very careful to declare his correct status!

if father does own 50% of the property then he is NOT allowed to claim the rent a room scheme as he is NOT a resident landlord. In that circumstance you will be allowed £2,125 rent a room tax free but father must use the "normal" method (rent received minus allowance expenses = net profit = taxable amount). Of course you are allowed to use the "normal" method yourself if that is better for you tax wise eg. your expenses are more than £2,125 pa

if it is more tax efficient for you to claim the rent a room allowance AND your total rent income is below the limit you do not have to notify HMRC. IF, however, your rental income is above the limit, then you MUST notify HMRC and will probably be required to do a self assessment tax return from now onwards

HMRC are informed of every property purchase in the UK, so they already know who is listed as the owner(s) of your property, you will be caught if your declaration does not agree with their records.

theartfullodger

We have seen the rent a room scheme and are aware that I can earn upto £4250 tax free.

Not quite - up to £4250 rental income... you'd earn less as you'll have some expenses... as HMRC state..

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).

orsm

Many thanks for the reply guys, My father is on the mortgage deeds and pays half the mortgage to help me but does not live here. We are going to leave the rent a room scheme and will fill out a self assessment form. Just a few questions I can’t find on the net and hope someone can answer them

1. How much tax do you pay on the income from renting a room on the self assessment?
2. How much can you claim in expenses from things like gas,water,elec,service charges, council tax, is it a percentage you can only claim ?
3. Because my Dads name is on the deeds and I will be the only landlord cos I am living there, am I the only one that needs to fill in the self assessment form, as stated above my dad is not interested in receiving any money from the room rental. And I will be paying all living costs.

Thanks Guys

theartfullodger

1. How much tax do you pay on the income from renting a room on the self assessment?
It counts as income along with everything else, so tax levels depend on your total earnings: Normally 22%, but if that income (profit from rent less expenses) tips you over the 40% limit you might pay some at 40%. Remember mortgage INTEREST (only the interest) is a valid expense, but presumably only a fair share for the room

2. How much can you claim in expenses from things like gas,water,elec,service charges, council tax, is it a percentage you can only claim ?
Dunno with just a room, sorry
3. Because my Dads name is on the deeds and I will be the only landlord cos I am living there, am I the only one that needs to fill in the self assessment form, as stated above my dad is not interested in receiving any money from the room rental. And I will be paying all living costs.
I had thought that property income must be declared in the same proportions as the ownership: (eg hubbie & wifie own 50/50 so declare income 50/50). Others may have better views..

Annisele

theartfullodger wrote: »

3. Because my Dads name is on the deeds and I will be the only landlord cos I am living there, am I the only one that needs to fill in the self assessment form, as stated above my dad is not interested in receiving any money from the room rental. And I will be paying all living costs.
I had thought that property income must be declared in the same proportions as the ownership: (eg hubbie & wifie own 50/50 so declare income 50/50). Others may have better views..

From the taxman's perspective, half of the rent would belong to your Dad and should be taxed as such. What he wants to do with the money that's left after tax (e.g. gift it to you) is entirely up to him, so long as the tax gets paid.

Edit: went looking for a source, and now I'm not sure I'm right - see here.

Paul_the_Painter

There are 3 things that your father could be on.

1. The deeds/land registry details
2. The mortgage agreement
3. The mortgage payments

Only the first confers ownership - and therefore a tax liability

You made reference to the "mortgage deeds" - they don't exist.For a couple of quid you do a land registry search just to make sure.