Rent a Room Scheme - Allowable Expenses

jcrpage

Hi all,

New to the forum, have a question that is driving me crazy as I can't seem to find the answer anywhere. I'm trying to complete my on-line tax return and I have a lodger so I think I want to claim the rent a room tax relief (it's my only property). The lodger pays above the £4250 annual tax relief so I get to choose options A or B depending on whether my allowable expenses make it worth my while.

How do I find out what the allowable expenses are for the rent a room scheme (as opposed to if you were a landlord with tenants) so that I can work out which option is better for me (or maybe I opt out). The rent from my lodgers is approx £5400pa.

Thanks in advance to anyone that can save my sanity,

Jen

HappyMJ

Anything to do with the house. A portion of the rent or the mortgage interest. The gas, electric, water, council tax, buildings insurance, maintenance, renovation of the room, wear and tear allowances....etc etc...

Listerbelle

HappyMJ wrote: »

Anything to do with the house. A portion of the rent or the mortgage interest. The gas, electric, water, council tax, buildings insurance, maintenance, renovation of the room, wear and tear allowances....etc etc...

Agree.

I did this for years - I had two lodgers, although ultimately I let some of them have their names on bills at different times over the years, so I didn't have or claim any associated gas or electric costs.

00ec25

Listerbelle wrote: »

Agree.

I did this for years - I had two lodgers, although ultimately I let some of them have their names on bills at different times over the years, so I didn't have or claim any associated gas or electric costs.

just to emphasise - if the lodger pays any of the bills themselves then your share of that bill is a "benefit in kind" - ie the value to you is the amount you would otherwise have had to pay yourself. therefore you must then declare that value on your tax return as your "income". Just because the bill is not in your name does not mean it is tax free

also if you have more than one lodger the property is liable for CGT on a % used basis even if it is your main home
"You might not get the full amount of relief if: You've let out all or part of your home (or taken in more than one lodger at a time). But you may be entitled to Letting Relief instead - see the section 'Letting all or part of your home' below"

http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

as for the OP, your excess is 1150 (so 20% tax = 230), so under method A your total expenses would obviously have to be more than 4250 to end up paying less than 230 in tax - but remember to exclude your share of all those expenses

anselld

jcrpage wrote: »

How do I find out what the allowable expenses are for the rent a room scheme

There are no "allowable expenses for the rent a room scheme". It is either one thing or the other, ie claim rent a room OR claim expenses.

jcrpage

Thanks all for the advice. My lodgers are a married couple, one of whom is a first cousin. I'm only just becoming aware that family relations might complicate matters - does it in this instance or is it only immediate family? And does it change if they have a child, which they are considering...

If it is two people lodging in one bedroom but with run of the house do I just split all bills by three? Some of the utility bills are in their name (I pay council tax, water, TV licence, they have the rest in their name) so I will do the whole income/outgoings sums and declare that too.

And thanks for the link on CGT - does that only count if you have lodgers at the time of sale or do you have to work out the years you had lodgers against the time you had the house. Not thinking of selling for a good while but interested anyway.

Thanks again, really appreciate the time taken to advise. Back to the sums I guess!

jcrpage

Oh, and I have done a lot of renovations/improvements to the house including bathroom, white goods for the kitchen, garden (including patio and new fence) and living room. I thought these wouldn't be counted as it is my main residence, can I claim a portion of these?

HappyMJ

jcrpage wrote: »

Thanks all for the advice. My lodgers are a married couple, one of whom is a first cousin. I'm only just becoming aware that family relations might complicate matters - does it in this instance or is it only immediate family? And does it change if they have a child, which they are considering...

If it is two people lodging in one bedroom but with run of the house do I just split all bills by three? Some of the utility bills are in their name (I pay council tax, water, TV licence, they have the rest in their name) so I will do the whole income/outgoings sums and declare that too.

And thanks for the link on CGT - does that only count if you have lodgers at the time of sale or do you have to work out the years you had lodgers against the time you had the house. Not thinking of selling for a good while but interested anyway.

Thanks again, really appreciate the time taken to advise. Back to the sums I guess!

Your first cousin would not be considered a non dependant like a parent, sibling or child so you can treat them like any normal lodger.

It is totally up to you. I would split all the bills by people myself. Especially the consumption type bills such as gas/electric and water. I would split the rent or mortgage interest and other fixed bills based on a floor area percentage.

jcrpage wrote: »

Oh, and I have done a lot of renovations/improvements to the house including bathroom, white goods for the kitchen, garden (including patio and new fence) and living room. I thought these wouldn't be counted as it is my main residence, can I claim a portion of these?

You can claim a wear and tear allowance on the white goods and can claim for any maintenance on the property and renovations if replacing the old for new but you can't claim for improvements.

katejo

jcrpage wrote: »

Hi all,

New to the forum, have a question that is driving me crazy as I can't seem to find the answer anywhere. I'm trying to complete my on-line tax return and I have a lodger so I think I want to claim the rent a room tax relief (it's my only property). The lodger pays above the £4250 annual tax relief so I get to choose options A or B depending on whether my allowable expenses make it worth my while.

How do I find out what the allowable expenses are for the rent a room scheme (as opposed to if you were a landlord with tenants) so that I can work out which option is better for me (or maybe I opt out). The rent from my lodgers is approx £5400pa.

Thanks in advance to anyone that can save my sanity,

Jen

There are definitely no allowable expenses if you use the rent a room scheme.

jcrpage

I'm now slightly confused, two posts state there are definitely "no allowable expenses for rent a room scheme" yet the hmrc paperwork mentions it, just not what it covers.

I think I will go with the majority and see what I can work out for my tax return.

Thanks once again all, really appreciate it.

sitesafe

jcrpage wrote: »

I'm now slightly confused, two posts state there are definitely "no allowable expenses for rent a room scheme" yet the hmrc paperwork mentions it, just not what it covers.

I think I will go with the majority and see what I can work out for my tax return.

Thanks once again all, really appreciate it.

This is a cut and paste I just found from this link:

http://www.findlaw.co.uk/law/tax/taxes/tax_on_property_and_rental_income/9547.html

The advantages and disadvantages of the scheme

There are advantages and disadvantages of the scheme - it's simply a matter of working out what is best for you.

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).

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 (2009-2010 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.