Letting to students in student sons' house

marcssteve

As far as I know, rent a room scheme is available only for the condition if the landlord stays in the same home and other than that, I also believe with the fact that the people who will be living in that room will be treated as tenants and not lodgers. However every region has its own policies regarding this thing.

00ec25

marcssteve wrote: »

As far as I know, rent a room scheme is available only for the condition if the landlord stays in the same home and other than that, I also believe with the fact that the people who will be living in that room will be treated as tenants and not lodgers.

Correct in part - but the RAR scheme is valid for use by a tenant taking in their own lodger as the T is obviouslt resident in that case and counts thereofre as the LL of the lodger
Taking in a lodger may or may not require written permission from the LL, depends on the TA between T and LL, but who is the T's ultimate LL has no impact on entitlement of the T to use RAR

as #3 above it can be easily structured so the sons let to a lodger with permission from their (parent) LL and therefore the room occupnats would certainly be lodgers not tenants. But that set up has tax implications for the parents, hencne Jnil's suggestion is by far simpler if the mortgage can be obtained on thiose terms

marcssteve wrote: »

However every region has its own policies regarding this thing.

unless you refer to differences between E&W , Scotland and NI then please explain what that means?

Furzil19

Hi again, the mortgage is already set up so can't change that, although the boys are mentioned on it as being the reason for purchase and are known as the dependants using the property.
Really not sure what to do as each way has advantages/disadvantages.
1. Our own sons as tenants = lodgers who have less rights (are easier to remove if they are a problem). The boys can also then use the rent a room scheme. Downside = they get the money & can't even pay the mortgage as that would be paying us. As the money exceeds the RRS allowance that would mean paying tax twice if they have to pay us.
(just a thought... Could they legally gift us chunks of money from their student loans & we pay the mortgage ourselves out of savings & our wages? We know they would each be limited to an amount as gift tax then needs paying, but not sure how much? - is this a dangerous move or a loop hole?)
2. Give everyone a joint tenancy agreement. Our daughter has it written into her's that if she chooses to leave mid-year that she has to keep paying the rent until she finds someone suitable to replace her. This way would at least protect the rent money. We would pay tax on the whole income but could claim on repairs etc against the tax.
3. Do individual tenancy agreements for the 2 others (not our sons). We take the money & pay the tax. Don't know much about this way as far as the pros & cons go.
Any other suggestions would be appreciated please, either regarding how to let the rooms or on how to receive money from the boys legally to avoid paying two lots of tax.
We also have another thread going (Renting to students - to Inc bills or not?). If you know anything about that too your advice would be greatly appreciated.

anselld

You will be the owner and mortgage payer as you have said it is too late to change that. I personally agree this is best anyway; students have enough things to worry about without the additional responsibilities of being home owner and Landlord.
So that leaves how to deal with tax.
Probably best to allow sons to live there rent free thus avoiding any income tax payable on their share of rent.
You can then claim 50% of your expenses against the income ( assuming 2 other Ts), the other 50% being treated as personal use by your sons.

"gifting chunks of money" and other "clever" ways to utilise RAR allowance etc will just be seen as tax evasion if it comes to any investigation.

marcssteve

Hi OOec25. Thanks for your concern. I am enlightened to much extent, as now I have understood this thing very clearly about the tenants and lodgers. Well, regarding different regions and their policies, I meant that different countries have different rules regarding lodgers' accommodations, however the procedure is same.

the-mango

Sorry to jump in on this thread but it is in the same vein. If the rental from the students is above the RAR allowance is it all taxed or only the bit above?

martindow

If the student sons sublet, tax probably won't be a problem. If they are not working, the rent will probably not exceed their personal allowance of £8,105 this year and £9,205 2013/2014.

00ec25

the-mango wrote: »

Sorry to jump in on this thread but it is in the same vein. If the rental from the students is above the RAR allowance is it all taxed or only the bit above?

read and understand the guidance - excess
http://www.hmrc.gov.uk/manuals/pimmanual/pim4001.htm

00ec25

4 rooms, 2 sons - each son takes one lodger. You as LL MUST let each room individually for this to work as it is the only way to ensure that each son can sub let individually. If let as joint T then sons must share one 4250 between them

Each son therefore gets the 4,250 against their own lodger, pays tax on excess IF the son has received more than their own 8105 personal allowance that year. Obviously if they get any income from working that will also erode part of the personal allowance, however, rental income is technically treated as a "top slice" of income so is added after any earnings. Therefore each would pay tax only if the total income (earnings plus RAR allowance) was over £12,355 (at 11/12 rates)

Remember that if the bils are in sons name (not yours) and lodgers pay towards those bills that counts as part of the RAR allowance - the whole point of the RAR is it excludes eligible costs, and utility bills are such a cost, so any contribution towards those is counted as income

the-mango

In my case I am only myself, no twin unforunately , and I have a part-time job so I go over tax thresholds but I'm just trying to work out what's tax efficient for me

Doing a spreadsheet with all my figures (as an individual with 2 lodgers) I think the RAR scheme is the way to go because even with the allowable 'expenses' I get taxed on less doing it that way.

http://www.communities.gov.uk/publications/housing/lettingrooms - This is quite useful too