claiming tax relief against rental income

katejo

If you are just letting a room in a house /flat, and you exceed the rent a room allowance, how do you know which expenses you can claim against the tax? Will you be taxed on the whole rent or just the amount in excess of £4250?
I have read all the website info about this but it does not answer my questions. eg. I don't see why it would be reasonable to claim against mortgage interest when the landlord is living there anyway and would have to pay this whether or not he/she had a lodger.
Re. utilities: how much difference does it actually make to have a 2nd person in the house.

BoGoF

You pay tax on the excess over £4250.

If you are claiming rent a room relief then you cannot claim any further expenses it's either rent a room or expenses not both.

00ec25

katejo wrote: »

I don't see why it would be reasonable to claim against mortgage interest when the landlord is living there anyway and would have to pay this whether or not he/she had a lodger.
Re. utilities: how much difference does it actually make to have a 2nd person in the house.

if you do not use the rent a room scheme then you would have to apportion the costs between the resident LL (so as you say not an eligible cost as its just the persons' personal expenditure) and the lodger. the lodger's share is an eligible cost because you are running a rental business. The fact they are a lodger rather than a tenant makes no dirrence for the Income Tax status regarding rental "business"

the basis of the apportionment is however an entirely different matter and one on which there does not seem to be definitive guidance
eg: floor space, no of rooms, estimated usage etc etc

remember also that if you let 2 or more rooms to 2 or more (unconnected) lodgers you become laible for Capital Gains Tax as you can no longer claim private residence relief for the whole of the property

katejo

BoGoF wrote: »

You pay tax on the excess over £4250.

If you are claiming rent a room relief then you cannot claim any further expenses it's either rent a room or expenses not both.

Yes I know that. However I have always preferred to stick with rent a room simply because I don't know what is reasonable to claim if I complete a tax return. 2011-2012 is the first year in which I would go over the limit (by a very small amount) and only because my lodger pays a small contribution towards council tax to compensate for my loss of single person discount.
However I am thinking of charging him a lower rent for Feb and March simply to keep below the £4250

BoGoF

How much over are you?

In all honesty I would doubt in these situations that your legitimate expenses would be over £4250 and there are very few instances where it would be beneficial to claim expenses rather than rent a room

katejo

00ec25 wrote: »

if you do not use the rent a room scheme then you would have to apportion the costs between the resident LL (so as you say not an eligible cost as its just the persons' personal expenditure) and the lodger. the lodger's share is an eligible cost because you are running a rental business. The fact they are a lodger rather than a tenant makes no dirrence for the Income Tax status regarding rental "business"

the basis of the apportionment is however an entirely different matter and one on which there does not seem to be definitive guidance
eg: floor space, no of rooms, estimated usage etc etc

remember also that if you let 2 or more rooms to 2 or more (unconnected) lodgers you become laible for Capital Gains Tax as you can no longer claim private residence relief for the whole of the property

I have never heard the above before re. capital gains tax. I have never seen it mentioned on any literature about letting rooms. It doesn't affect me as I only have 1 spare room to let.

katejo

BoGoF wrote: »

How much over are you?

In all honesty I would doubt in these situations that your legitimate expenses would be over £4250 and there are very few instances where it would be beneficial to claim expenses rather than rent a room

My total rent will be £4440 so I am over it by just £190 (all of which goes to the council as extra council tax because I lose my single person discount).

BoGoF

So £38 in tax assuming you're a basic rate taxpayer....is it worth the extra work for that - only you can decide

katejo

BoGoF wrote: »

So £38 in tax assuming you're a basic rate taxpayer....is it worth the extra work for that - only you can decide

Not sure what you mean by "is it worth the extra work for that?" extra work doing what? Completing a tax return?

00ec25

katejo wrote: »

I have never heard the above before re. capital gains tax. I have never seen it mentioned on any literature about letting rooms. It doesn't affect me as I only have 1 spare room to let.

With respect, you can't have done much reading then. The single most important place to start to understand CGT is to read HMRC helpsheet 282 here which is updated every tax year and explains the basics about CGT
in relation to lodgers read the bottom of page 2, I quote:

"If you have a single lodger, the rooms occupied by the lodger qualify for relief. If you have more than one lodger, or if you let part or all of your home at any time in your period of ownership, the let parts will not qualify for Private Residence Relief. However, you may be entitled to claim ‘Letting Relief’ which is explained on page 6."

jimmo

You could do a lot worse than look at the Tax Return Letting Income pages,
http://www.hmrc.gov.uk/forms/sa105.pdf
Together with the guidance notes.
http://www.hmrc.gov.uk/worksheets/sa105-notes.pdf
I imagine it is not exactly easy reading if you are not used to dealing with tax matters but the basics are all there. You should also remember that whilst HMRC try to guide you towards correctly determining your own tax liability, they are not exactly in the business of advising you how to minimise your tax liability. That is what accountants are for.
Strictly speaking, completing the Tax Return is the easy bit. The big headache will be preparing accounts (or a profit and loss computation) in order to complete the Return.