Rent a room scheme - what bills must be included?

Andrew_Cottrell

I am in the process of buying a freehold house and, with the permission of my mortgage provider, have offered to rent a room to my brother using the Rent a Room Scheme. The rent, which would not exceed £4,250 in the first full tax year, would include gas, electricity, water, council tax, wear & tear, insurance, and repairs.

However, were I were living alone, I would not require a land-line phone, internet connection, or TV license. My brother does require these and I have suggested that he could purchase these in his name.

Might HMRC decide that I should pay income tax on the amount my brother would pay for these?

Fire_Fox

http://www.hmrc.gov.uk/individuals/tmarent-a-room-scheme.shtml
HMRC are usually helpful on the telephone too.

If your lodger has a private room TV Licensing deems them to need their own TV license anyway which also covers the communal areas. This might not apply if the lodger is your brother, you would need to ask.

Andrew_Cottrell

Fire_Fox wrote: »

http://www.hmrc.gov.uk/individuals/tmarent-a-room-scheme.shtml

Thanks for that. Helpsheet 223 says:

If your gross receipts (before expenses and including any amounts received for meals, goods and services provided, such as cleaning or laundry) and any balancing charges do not exceed £4,250 you will be exempt from Income Tax on any profits made.

Given that I would not be in receipt (gross or otherwise) of the monies that would be paid for land-line phone, internet connection, or TV license, then I assume that there would be no income tax to pay.

Fire_Fox wrote: »

If your lodger has a private room TV Licensing deems them to need their own TV license anyway which also covers the communal areas. This might not apply if the lodger is your brother, you would need to ask.

TV Licensing says

You don’t need a TV Licence
If you’re a lodger and have a relationship with the homeowner – for example, a family member, common law partner, a nanny, au pair or housekeeper

As I won't have a TV license, he'll need to buy one. Looks like it would cover the entire house.

martinsurrey

can I just ask what is the size of the mortgage and interest rate on the house?

and what rent are you charging him?

HappyMJ

Andrew_Cottrell wrote: »

Thanks for that. Helpsheet 223 says:
Given that I would not be in receipt (gross or otherwise) of the monies that would be paid for land-line phone, internet connection, or TV license, then I assume that there would be no income tax to pay.

TV Licensing says
As I won't have a TV license, he'll need to buy one. Looks like it would cover the entire house.

If he wants to use the landline then he pays the bill directly to the phone company and then you won't be receiving it an have nothing to do with it. Same with broadband. You can even give your lodger the gas and electricity top up cards and get them to top them up without having to receive the money in your hand and accounting for it. The guidelines are really to prevent landlords getting around the rules by having guests paying for the laundry to be done directly to the landlord or for payments to you for breakfast and dinner cooked for your lodger in a setup very similar to a bed and breakfast in which you would be self employed and having to account for every expense on all amounts.

Generally though payments between brothers and sisters can be exempt from HMRC interference anyway. You basically provide him a room for free and then he chooses to gift you the money. You can never demand it though. Same with parents asking kids for board and lodgings...The HMRC do not expect parents to pay tax on that money.

Andrew_Cottrell

martinsurrey wrote: »

can I just ask what is the size of the mortgage and interest rate on the house?

I'm not sure what bearing that has on this thread.

If you are interested, the rent suggested is below what is normally asked for in the area. My motivation is to help my brother save money. I've chosen a rent amount that is sure to cover any extra expenses while avoiding tax complications.

martinsurrey

Andrew_Cottrell wrote: »

I'm not sure what bearing that has on this thread.

If you are interested, the rent suggested is below what is normally asked for in the area. My motivation is to help my brother save money. I've chosen a rent amount that is sure to cover any extra expenses while avoid tax complications.

because 50% of the mortgage interest + 50% of the council tax + 50% of the heating/lighting +50 % of the insurance + 50% of the water + 50% of the maintenance could VERY easily exceed the rent, giving you a rental loss in HMRC's eyes, these losses can be carried forward and used against other rental profits in later years (and you never know when you might need them), so the rent a room scheme might not be the best way for you to go.

but to give you a more detailed view I would need the info I asked for.

Andrew_Cottrell

martinsurrey wrote: »

becuase 50% of the mortgage interest + 50% of the council tax + 50% of the heating/lighting +50 % of the insurance + 50% of the water + 50% of the maintenance could VERY easily exceed the rent, giving you a rental loss in HMRC's eyes, these losses can be carried forward and used against other rental profits in later years (and you never know when you might need them), so the rent a room scheme might not be the best way for you to go.

but to give you a more detailed view I would need the info I asked for.

Thanks for explaining.

The 25 year mortgage is capital repayment and would start at £124,950 with 2.54% interest. The council tax, for 2012/2013, is £1,658.91. I don't have accurate figures for the bills. The annual rent would be £4,250 in the 2013/2014 tax year.

martinsurrey

on such a good mortgage rate rent a room scheme is the way to go, if interest rates rise (or the house costs a fortune to run) though it would be worth looking at the other options.

mortgage interest = £3,174
Ctax = £1,658
Energy = say £960 (£80 per month)
Water = say £360 (£30 per month)
Insurnace = say £200
Total = £6,352

half of that= £3,176
Add wear and tear allowance at 10% of rent = £425
allowable expenses = £3,601

so under the rent, but not by much!

00ec25

HappyMJ wrote: »

If he wants to use the landline then he pays the bill directly to the phone company and then you won't be receiving it an have nothing to do with it. Same with broadband. .

agreed the LL gets no benefit from these services so they are not part of his income

HappyMJ wrote: »

You can even give your lodger the gas and electricity top up cards and get them to top them up without having to receive the money in your hand and accounting for it.

wrong - the LL is resident thetrefore gets a benefit form the ultities as he is using them too, therefore such opayments by the lodger are beenfits in kind and must be declared as income under the RAR scheme

HappyMJ wrote: »

Generally though payments between brothers and sisters can be exempt from HMRC interference anyway. You basically provide him a room for free and then he chooses to gift you the money. You can never demand it though. Same with parents asking kids for board and lodgings...The HMRC do not expect parents to pay tax on that money.

agreed but only in the context that they live together as one household and it relates to such living costs ,
otherwise any such payments would be treated as potentially exempt transfers (PETS) and subject to IHT liability - if there is one

katejo

martinsurrey wrote: »

because 50% of the mortgage interest + 50% of the council tax + 50% of the heating/lighting +50 % of the insurance + 50% of the water + 50% of the maintenance could VERY easily exceed the rent, giving you a rental loss in HMRC's eyes, these losses can be carried forward and used against other rental profits in later years (and you never know when you might need them), so the rent a room scheme might not be the best way for you to go.

but to give you a more detailed view I would need the info I asked for.

I have stuck with the rent a room method because I am not sure about what is reasonable to count as expenses

eg. council tax: why should you claim against 50% when an extra person in the property only adds 25% to the cost?

Fuel: I don't think my fuel bills have doubled by having an extra person here

Maintenance: I am not spending double the amount on house maintenance just because I have a lodger