Renting Rooms in my home

agentjamesbond

Hello,

I am just looking for clarification I have the correct understanding of this issue before I rent another room out in my house.

Any help and advise will be greatly appreciated.

I currently have one lodger paying 4250 which is tax free allowance.

I am looking at another one or two in paying the same. My wages for employer in last tax year was 37064 taxable pay (38634 gross) I expect roughly the same this year.

If I had two more lodgers paying 4250 I'd have to pay tax as :-

1 lodger 4250 tax free
1 lodger more or less at 20% = (4250/0.2) 850
1 lodger more or less at 40% = (4250/0.4) 1700

So I'd be left with roughly £10200 cash from £12750.

Is this correct? and also would this change if the total amount was over £15000?

These are rooms in my house. Thank you. James.

angelsmomma

I don't think you can use the 4250 as tax free in this situation. You need to add them all together then take of expenses and what is left is added to your income for tax purposes

eg: 3 x 4250 = 12750 minus expenses.

agentjamesbond

That's not good

I can't think of much in expenses I'd have..

Any idea how come I can't use the rent a room scheme relief?

Thanks for your reply.

holly_hobby

This will guide you

http://www.hmrc.gov.uk/manuals/pimmanual/pim4001.htm

Holly x

angelsmomma

I can't remember why just now but I did look into it as like yourself I have a lodger and wanted to get another.

Someone will be along soon with a link I'm sure.

edit, typed while Holly posted

agentjamesbond

Thanks Holly..

I have red through that and I still am struggling to understand why I can't claim the tax free rent a room 4250 relief??

Sorry if I'm being stupid here..

It is my residence too, I still live there for information.

If I had 2 lodgers instead of 3 could I still claim rent a room?

Thanks for any help, once again..

noh

agentjamesbond wrote: »

Thanks Holly..

I have red through that and I still am struggling to understand why I can't claim the tax free rent a room 4250 relief??

Sorry if I'm being stupid here..

It is my residence too, I still live there for information.

If I had 2 lodgers instead of 3 could I still claim rent a room?

Thanks for any help, once again..

You can still use the rent a room allowance, see:-
http://www.hmrc.gov.uk/manuals/pimmanual/PIM4030.htm

agentjamesbond

Thanks for everyones responses and time taken to find the relevant information..

So my understanding is my original thinking was more or less correct, which is not so bad.

Thanks once again.

Jay

cotswoldaccountant

If your expenses from renting out rooms in your house are less than £4,250 for the year then you should use Method B for calculating taxable income from letting rooms, as per the link in the previous post. Under Method B, you are taxed on your gross receipts from letting minus the £4,250 exemption.

So, if each lodger paid you £4,250 in the tax year, you would receive 3 x £4,250 = £12,750. You pay tax on £12,750 minus the exemption of £4,250, i.e. £8,500 is taxable.

If you expect your expenses from letting to be more than £4,250, then it would be more advantageous for you to use Method A, whereby you are taxed on your rental profit (income less expenses) as with any other letting business. You can take into account a proportion of mortgage interest, utilities, insurance etc in calculating your expenses.

angelsmomma

Thank you that explained it for me too. I am thinking of getting a second lodger again but was very confused by the tax situation