Lodgers, Tax & the Rent a Room Scheme.

The_Boys_18

Hi Everyone,
Me and my brother are students sharing a house. We want to rent out 2 rooms to lodgers using the Rent a Room Scheme and have permission to do so.
Neither of us has ever had to pay tax before because on our Saturday jobs we didn't earn enough. Now we will have to because we can potentially get £8320 from having 2 lodgers.
My first question is.... do we only have £2125 allowance each because we both live under the same roof or can we have a lodger each and get £4250 allowance each?
_pale_Secondly, we're really worried about getting a self assessment form for tax wrong. Does the year we're looking at start on 5th April 2012, the 22nd September 2012 or in January 2012? We haven't got anyone in yet, but someone wants a room from the 22nd September 2012 paying £85 a week. Do we need to go back through 2012 and declare our Saturday job wages? (We didn't keep any wage slips!)
We don't even know when we have to set up the online form or when we have to start paying the tax. Do they tell you what percentage of the rent income needs to be paid as tax as we haven't a clue?
:beer: Thanks for reading all our questions. Sorry there are so many.

System

You only get £2125 allowance each http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017804

martinsurrey

what is your income from the saturday job? per week.

what is the total rent on the house you are living in?

important questions as to if you'll have to pay tax or not.

The_Boys_18

Hi again,

Thanks for the reply. I earned £35 a week and my brother got £30. We also did some school holiday work, but I don't know exactly how much and we would have to ring up our old bosses. Neither of us work now as we moved away.

The most we will get total rent is £8320.

Thanks :beer:

00ec25

Every individual is allowed to earn £8,105 per year tax free. If your total earnings (incl rent) are more than that, then you will pay 20% tax on the excess above £8,105
I assume you are in a joint tenancy with your brother and rent the whole house? Therefore it is one property so the RAR allowance will be split between you and the rental income will also be split
So you will each get 4160 in rent (8320/2) and will each have a RAR allowance of 2125 (4250/2) leaving each person with 2,035 taxable income
You add 2,035 to the total of your other earnings (eg 35 per week = 1,820 pa) and if that grand total is still under 8,105 you will still not have to pay any tax at all

However, because you will receive untaxed rental income in excess of your RAR allowancne you must inform HMRC of this fact (send a letter) and they will decide if you need to complete a full blown tax return or, more likely, they willl accept a statement from you showing your total earnings in the year and thus the high probaibiolity that you will not owe any tax so they wil ignore you for the moment

martinsurrey

00ec25 wrote: »

Every individual is allowed to earn £8,105 per year tax free. If your total earnings (incl rent) are more than that, then you will pay 20% tax on the excess above £8,105
I assume you are in a joint tenancy with your brother and rent the whole house? Therefore it is one property so the RAR allowance will be split between you and the rental income will also be split
So you will each get 4160 in rent (8320/2) and will each have a RAR allowance of 2125 (4250/2) leaving each person with 2,035 taxable income
You add 2,035 to the total of your other earnings (eg 35 per week = 1,820 pa) and if that grand total is still under 8,105 you will still not have to pay any tax at all

Bingo!

so unless you earn more than £117 a week on average, you wont have any tax to pay. (8105-2035)/52

if you only start renting the property during the year, you still get the whole allowance for that tax year (5 april to 4 april) so it is even less likely you will pay tax in these years (the first and last)

The_Boys_18

Excellent! That helps so much. Thanks for the advice & info.

Taiko

Don't forget, if you take on non students you'll have the council tax to deal with as well.