Sharing / sub letting and rental income question

tilopa44

Hi all,

I'm renting an apartment with four bedrooms, living in one and renting out the other three (the landlord is fine with this).

I pay the landlord a fixed amount each month regardless of whether rooms are empty. The other tenants pay me rent.

Effectively I am just taking their money and using it to pay the rent and the bills. I don't make any profit from this, my primary motive is to choose my flatmates.

I've been living here for about 3 years, and the way it works out is that over that time I've paid a bit below market rent for my room, although it goes up and down due to void periods.

My question is, can I get into any trouble with this and get taxed on non existent rental income? Like I said, I don't make a profit on this, and it really wouldn't matter to me if the other tenants paid their share directly to the landlord, but he wants 1 payment from one person.

thanks in advance for suggestions,

G_M

Yes, you are are receiving income in the form of rent.

However there is an HMRC scheme for lodgers the Rent a Room scheme, which applies. Your house mates are lodgers, not tenants, as they share the property with their landlord - you.

Details here. Check that the amount you receive is within the limits allowed.

00ec25

whilst GM is correct regarding your status a s the LL of the lodgers the RaR scheme is not what you want

strictly speaking you are in trouble because you have not declared to HMRC the fact that you receive a source of untaxed property related income - ie rent from the lodgers.

HOWEVER, if you use the "normal" method (you don't need the RAR scheme) your expenses appear to exceed your rent income,
the fact you have to pay rent to the head LL in order to for you to provide the accommodation (ie your only home in which you are the resident LL) that you then let out to the lodgers means you can claim that rent as a cost against your rental business

so, although you are liable for tax, there will actually be none to pay. If there is no tax outstanding then you will not be penalised fro not having infomred HMRC 3 years ago, that however is no reason for not doing so now and getting the situation squared away

G_M

00ec25 wrote: »

whilst GM is correct regarding your status a s the LL of the lodgers the RaR scheme is not what you want

strictly speaking you are in trouble because you have not declared to HMRC the fact that you receive a source of untaxed property related income - ie rent from the lodgers.

HOWEVER, if you use the "normal" method (you don't need the RAR scheme) your expenses appear to exceed your rent income,
the fact you have to pay rent to the head LL in order to for you to provide the accommodation (ie your only home in which you are the resident LL) that you then let out to the lodgers means you can claim that rent as a cost against your rental business

so, although you are liable for tax, there will actually be none to pay. If there is no tax outstanding then you will not be penalised fro not having infomred HMRC 3 years ago, that however is no reason for not doing so now and getting the situation squared away

ooec25 may well be right.

However the link I provided includes advice on how to assess the advantages/disdavantages of the R-A-R scheme Vs the approach OOec25 advocates.

Reseach both and then decide.


"To work out whether you will be better off joining the scheme or declaring all of your letting income and claiming expenses on your tax return you need to compare the following:

• how much income you are left with after your expenses
• the amount of your receipts (rent plus any income from laundry services, meals, etc) over £4,250 or £2,125 if letting jointly (2011-12 tax year)

If you opt out of the scheme (or simply do nothing) you will pay income tax on the first amount. If you opt into the scheme you will pay tax on the second amount.

• Expenses you can claim outside the Rent a Room scheme"

tilopa44

Thanks guys.

My niece shares a house with people and all the flatmates transfer the money to just one flatmate, who then makes a lump sum payment to the landlord on behalf of all of them.

Is there any way I can restructure my contracts to do the same thing so I can avoid having to go through the hassle of declaring rental income?

Thanks again.

tilopa44

I don't think the rent a room scheme will work out, as the amounts are too large.

In 2010 I paid £13,200 in rent and received £11,413. I also have to pay all the bills and council tax from rent receipts though.

Previously I just didn't really think about it, as I currently don't file a tax return at all. Now I'd like to start doing everything properly though, and I'm looking for the simplest way to do this.

If I can just accept payment on behalf of the landlord or something similar, that would be preferable to having to deal with tax returns and potential inquiries. form HMRC, even though it's all above board.

G_M

tilopa44 wrote: »

....If I can just accept payment on behalf of the landlord or something similar, that would be preferable to having to deal with tax returns and potential inquiries. form HMRC, even though it's all above board.

To achieve this either
a) the other occupants would have to have individual contracts with the landlord, with you acting as the LL's agent and collecting the rent. However this would probobly make the property a HMO (if not already!) and would cause loss of rent problems for the LL if a room was empty or
b) there would need to be a single joint tenancy agreement between all of you and the LL

Of course both the above mean
a) you lose control of who moves in (unless the LL lets you decide as his agent) and
b) the LL has to deal with 4 people