Not another rental tax thread...

jonas123

Hi all, yup it's another rental tax thread.

I'm about to move into a 2 bed flat with my OH and we're planning on renting out the 2nd bedroom.

The rental value would be in the region of £650 a month = £7800 a year.

Obviously this is far above the rent a room scheme threshold, so I was wondering what ways I have to decrease my tax bill. Am I able to deduct the full amount of the following things bearing in mind I'll be living there too (or will i have to divide these by 2 or 3 as that's how many will be living there)...

• Mortgage interest
• Service charge
• Rent (as it's shared ownership)
• Council tax
• Bills (elec, gas etc)

How else can I make this more tax efficient?

Thanks

katejo

jonas123 wrote: »

Hi all, yup it's another rental tax thread.

I'm about to move into a 2 bed flat with my OH and we're planning on renting out the 2nd bedroom.

The rental value would be in the region of £650 a month = £7800 a year.

Obviously this is far above the rent a room scheme threshold, so I was wondering what ways I have to decrease my tax bill. Am I able to deduct the full amount of the following things bearing in mind I'll be living there too (or will i have to divide these by 2 or 3 as that's how many will be living there)...

• Mortgage interest
• Service charge
• Rent (as it's shared ownership)
• Council tax
• Bills (elec, gas etc)

How else can I make this more tax efficient?

Thanks

That is what puts me off exceeding the rent a room allowance. I would not know what could be claimed. In your case, it would seem unreasonable to claim for council tax, for example, because you and your partner would have to pay the full rate anyway. In comparison, I lose my single person discount when I have a lodger but I am not allowed to offset that against the £4250 allowance. You would also still have to pay the rent and mortgage whether you had a lodger or not.

jimmo

Yes you can claim a proportion, not the full amount, of all those things and more.
The problem is establishing what proportion.
The simple method is to say that you are letting out 1 bedroom and if your flat consists of 2 bedrooms, lounge and kitchen (for some reason bathrooms are normally ignored), you are letting out a quarter of your flat and can claim a quarter of your bills.
However when I let out the second bedroom in my flat my tenant was not confined to his bedroom. We were more like family than landlord and tenant. He had his bedroom and I had mine (the bigger one) but we shared the rest of the flat, we shared the cooking and cleaning and ate together etc, etc.
So I, rightfully in my view, split all the costs 50:50.
I can’t point you to an HMRC link saying what I did was right or wrong, but being a taxman myself, I would have been very confident of justifying what I did before a tribunal if necessary.
So I would suggest that if and when you establish the ground rules of how the two of you, as a couple, and your lodger are going to live together you will also be pretty close to establishing what proportion of the household bills you can set against the rental income.
Take a look at this. It will give you the basics about what you can claim.
http://www.hmrc.gov.uk/worksheets/sa105-notes.pdf