Letting to students in student sons' house

00ec25

the-mango wrote: »

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

you plus 2 lodgers = 3 people. The easiest way is to claim all costs therefore split in thirds, 66% is thus allowable against tax when not in RAR.

simple maths shows RAR always better until such time as net profit exceeds £4,250pa

eg
IN RAR: rent 5250 pa - RAR 4250 = 1000 @20% = 200tax

not in RAR:
eg a) rent 5250 less 66% of bills (say) 1250 = net profit 3000 so tax @20% = 600tax In RAR better
eg b) rent 5250 bills 4750 = net proft 500 @20% tax = 100 Not in RAR better

00ec25

the-mango wrote: »

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

you do realise don't you that having more than one lodger means the house is now partially liable for Capital Gains Tax when you sell it ?

see bottom of page 2 on PRR relief guide
http://www.hmrc.gov.uk/helpsheets/hs283.pdf

the-mango

00ec25 wrote: »

you do realise don't you that having more than one lodger means the house is now partially liable for Capital Gains Tax when you sell it ?

see bottom of page 2 on PRR relief guide
http://www.hmrc.gov.uk/helpsheets/hs283.pdf

Thanks for alerting me to that.

00ec25 wrote: »

you plus 2 lodgers = 3 people. The easiest way is to claim all costs therefore split in thirds, 66% is thus allowable against tax when not in RAR.

simple maths shows RAR always better until such time as net profit exceeds £4,250pa

eg
IN RAR: rent 5250 pa - RAR 4250 = 1000 @20% = 200tax

not in RAR:
eg a) rent 5250 less 66% of bills (say) 1250 = net profit 3000 so tax @20% = 600tax In RAR better
eg b) rent 5250 bills 4750 = net proft 500 @20% tax = 100 Not in RAR better

I worked it out as

total rent/year = 9600
bills/month/person = 40 (and this is where my sums may have gone wrong because I'm not sure if this is vaguely right?)

In RAR
amount taxed = 6310
broken down:
9600 + (40*12*2) -4250=6310
total rent + (bills x months x no of lodgers) - RAR allowance

Not in scheme
amount taxed = 6980
broken down:
9600 - (40*12*2) - (500) - (contents? c.200?) - 960
total rent - expenses (which are utility bills, service charges, contents insurance and maintenance/wear and tear)

ok, so a marginal difference, where the sums may be skewed if I've got some things wrong...

00ec25

the-mango wrote: »

Not in scheme
amount taxed = 6980
broken down:
9600 - (40*12*2) - (500) - (contents? c.200?) - 960
total rent - expenses (which are utility bills, service charges, contents insurance and maintenance/wear and tear)

ok, so a marginal difference, where the sums may be skewed if I've got some things wrong...

other eligible costs?
- interest element (only, not capital element) of your mortgage
- council tax
- buildings insurance (although service charge implies you are in a flat so don't need it)

all apportioned correctly of course!

the-mango

00ec25 wrote: »

other eligible costs?
- interest element (only, not capital element) of your mortgage - no mortgage
- council tax - no council tax as students
- buildings insurance (although service charge implies you are in a flat so don't need it) - you are correct!

all apportioned correctly of course!

thanks RAR still looks to be the better option at the moment

notrouble

Can I just confirm...?

If the 2 boys are family, and don't pay rent, is there still a tenancy between the owner (parent) and occupier (son)? ie do all the AST requirements apply?

If each boy then takes in a lodger, this is a simple lodger agreement (with RAR scheme eligibility) assuming the rent goes to the boys not the parents.