Can the Tax be offset against Residential mortgage

Mishomeister

I am looking to buy a 3 bedroom flat. I will live in one room and 2 will be let out to loungers.
Can I offset the income from loungers against the tax ?

antrobus

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

Mishomeister

antrobus wrote: »

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

That doesn't exactly answers my question hence I would be earning above £4,250 threshold.
I know buy to let landlords can offset mortgage against tax but whether this would apply here

ValHaller

Mishomeister wrote: »

That doesn't exactly answers my question hence I would be earning above £4,250 threshold.
I know buy to let landlords can offset mortgage against tax but whether this would apply here

Costs can be set against tax, but income is taxable. You seem to have grasped this the wrong way.

Werdnal

I think what OP is asking is can he used his mortgage payments as an allowable expense against the tax he would pay on rental income from his lodgers (loungers???).

I very much doubt it as OP would be living there, so it is his home, and HMRC would not treat his residential mortgage payments in the same way as a BTL LL, letting to tenants but not sharing the property.

00ec25

Werdnal wrote: »

I very much doubt it as OP would be living there, so it is his home, and HMRC would not treat his residential mortgage payments in the same way as a BTL LL, letting to tenants but not sharing the property.

not so

OP if you read the link provided by antrobus properly you will see that where you have a lodger you can:

EITHER claim the £4,250 tax free allowance and pay tax on everything in excess of 4,250. No other costs (ie eligible cost deductions or "offsets" if you prefer) are permitted.

OR you do not claim the 4,250 but instead you follow the "normal" method as used by BTL ie you pay tax on your net profit after deduction of eligible costs from the total income (Ie rent) you receive. In this latter case the mortgage interest is an allowable cost but note you must APPORTION that cost on the basis that some of it relates to you own personal expenditure rather than a cost of your lettings business

again if you read the guidance you will see there is no one size fits all correct method of apportionment. You must come up with your own mathematics and be prepared to justify them to HMRC when they query

getmore4less

I think any offsetting would result in part of the property being liable for CGT much the same as business expences if you work from home.

probably best to stick to the rent a room with lodgers.

The lender and insurance would also need to know.

Werdnal

Thanks 00ec25, you learn something new every day!

So basically, OP can use some of the mortgage INTEREST they pay as an allowable expenses, but must calculate it fairly to account for the portion applicable to each lodger's accommodation, versus his own home.

Sounds far too complicated for me, but there you go OP - make sure you draw up a spreadsheet incase HMRC come knocking and want proof of your calculations !

00ec25

getmore4less wrote: »

I think any offsetting would result in part of the property being liable for CGT much the same as business expences if you work from home.

probably best to stick to the rent a room with lodgers.

The lender and insurance would also need to know.

not quite

you are correct that the CGT is also based on an apportionment BUT as soon as you have more than one lodger then the property becomes liable to CGT irrespective of whether you are in or out of the rent a room scheme.

CGT liability has nothing to do with income tax status it is simply a factor of lodger headcount