Tax!

Confused7

Hi,

My girlfriend is buying a two bedroom property in London at the moment. Myself and her step-brother are going to be moving into the property with her. Will she have to pay any tax on the rent we going to be paying? The rent we will pay will still fall well short of her mortgage payments if that makes any difference.

Any help would be appreciated

Thanks

Tixy

Depends on how much she will be receiving (in monetary terms, not compared to her mortgage)

Suggest to her she looks at the HMRC website in relation to the "rent a room" scheme.
http://www.hmrc.gov.uk/individuals/tmarent-a-room-scheme.shtml

00ec25

To be blunt
You
a) If by girlfriend you mean you are sharing the same bedroom then you could argue that you are a cohabiting couple and you are contributing towards household expenses so no income tax liability for her. However, she should be made aware that if you split up you could take her to court for a share of the value of the property on the basis that you have paid towards her mortgage and so have at you have acquired a “beneficial interest" in the property and therefore although not on the mortgagedeeds you have some claim over it
.
b) If you are in separate rooms and you pay her then technically you are a lodger and she is receiving a taxable income. As a live in landlord she can use the Rent a Room scheme under which she can receive a total of £4,250 per year “rent” (£354.16 pcm) tax free and she would not need to declare or inform HRMC.


Step brother
Although he may be a step brother and so “family” the situation for him is he would be a lodger as he has no interest in the property (not an owner) is not committing incest so has no claim for beneficial ownership. Therefore his payments to her are taxable


Note the total 4,250 is the max she can get from both of combined, it is not per person. If she gets more than 4,250 she will need to declare it and pay tax on the amount over 4.250

kingstreet

Anyone else read the title and see "Taxi!"?

Kynthia

I disagree with some of 00ec25's post. People who are part of your 'household' are guests and not lodgers. They are part of your 'household' if they are family or your partner. They can contribute finacially to the running costs of the household without it being a form of income that needs to be declared to the HMRC.

00ec25

Kynthia wrote: »

I disagree with some of 00ec25's post. People who are part of your 'household' are guests and not lodgers. They are part of your 'household' if they are family or your partner. They can contribute finacially to the running costs of the household without it being a form of income that needs to be declared to the HMRC.

it comes down to semantics
agreed that step brother (ie family) contributing to the utlity bills and food costs is sharing the household expenses just like if they were living at home still and paying money to their parents for their upkeep.

But where the stated purpose is "rent" which is intended to cover a "mortgage" then I draw the line because there is a clear financial profit motive, it is no longer a case of sharing costs, the property owner is now unilaterally making a financial gain at the expense of the other occupiers.

semantics come into play because if step brother buys all the household food then sister makes a saving and can pay the mortgage with the money she would otherwise have paid on food/bills. A nice opportunity cost equation from which she can profit tax free because of the family+BF triangle.

there is a clear difference between paying "rent" ie. a set sum per month, and sharing household costs ie. a (set) x% of each bill whose value thus varies month to month depening on size of bill. To my mind as soon as you fix an ammount per month ("rent") that the sister wants to help pay her mortgage, that = profit = taxable income, but can be offset under the RAR so may not result in paying any tax anyway.

Kynthia

00ec25 wrote: »

it comes down to semantics
agreed that step brother (ie family) contributing to the utlity bills and food costs is sharing the household expenses just like if they were living at home still and paying money to their parents for their upkeep.

But where the stated purpose is "rent" which is intended to cover a "mortgage" then I draw the line because there is a clear financial profit motive, it is no longer a case of sharing costs, the property owner is now unilaterally making a financial gain at the expense of the other occupiers.

semantics come into play because if step brother buys all the household food then sister makes a saving and can pay the mortgage with the money she would otherwise have paid on food/bills. A nice opportunity cost equation from which she can profit tax free because of the family+BF triangle.

there is a clear difference between paying "rent" ie. a set sum per month, and sharing household costs ie. a (set) x% of each bill whose value thus varies month to month depening on size of bill. To my mind as soon as you fix an ammount per month ("rent") that the sister wants to help pay her mortgage, that = profit = taxable income, but can be offset under the RAR so may not result in paying any tax anyway.

I still dissagree. Many people pay a set amount each month in order to contribute to the household and it doesn't make them a lodger. When children leave school and get a job but still live at home, their contribution is often a set amount of rent each month as opposed to a percentage of bills varying each month but no-one would argue they are lodgers. I believe you are either a member of the owner's 'household' or you aren't, although I do think it's possible to blur the lines if a family member was given a lodger's agreement or some kind of verbal/non-verbal contract.

To be honest it would probably be best for someone to call the HMRC and ask about whether a step-brother paying a set amount each month would be a member of the household or a lodger providing taxable income.