Rent a room scheme (Lodger)..quick question

posterboy_2

2 questions regarding renting a spare room:

1. I am thinking of renting a spare room (room + bills included as fixed monthly fee). I am aware that the rent a room scheme allows a £4,250 tax-free allowance, however, can someone please confirm if the tax-free allowance includes bills or just the rent amount?

2. I am going to inform my mortgage company about my plan, however, is it common for mortgage companies to refuse request to rent spare rooms?

gazter

posterboy wrote: »

2 questions regarding renting a spare room:

1. I am thinking of renting a spare room (room + bills included as fixed monthly fee). I am aware that the rent a room scheme allows a £4,250 tax-free allowance, however, can someone please confirm if the tax-free allowance includes bills or just the rent amount?

2. I am going to inform my mortgage company about my plan, however, is it common for mortgage companies to refuse request to rent spare rooms?

I woudnt tell them about a lodger. Do tell your insurance company though.

Cornucopia

1. It's just the rent - it's intended to be a very simple tax treatment.

2. Shouldn't be an issue for the mortgage.

Prothet_of_Doom

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

basically if your turnover is more than that amount you have to declare the earnings, after deductiong costs. Having met a few people who rent rooms, they get around the figure by requiring cash

Brian8888

Doublecheck with a tax accountant. FInd a cheap one and the money spend will be well worth is compared to any hassle later on.

G_M

No need to tell mortgage lender. This is not a tenant.

Telling them may cause confusion as the customer services bods may not understand the difference.

The £4,250 RARC allowance covers whatever you are paid - it does not differentiate between rent, utility bills, contribution to loo-paper oranything else.

gazter

G_M wrote: »

No need to tell mortgage lender. This is not a tenant.

Telling them may cause confusion as the customer services bods may not understand the difference.

The £4,250 RARC allowance covers whatever you are paid - it does not differentiate between rent, utility bills, contribution to loo-paper oranything else.

And the amount is divided evenly by the owners of the property. So if there are two of you who own it, you each get a tax free income of £2,125.

posterboy_2

Thanks all,

Monthly charge I was thinking was £450 (Rent £350 + Bills £100), therefore annual turnover of about £5,400. Does this mean that I have to pay tax on £ £1,150 (£5,400 - £4,250)?

Thanks again.

G_M wrote: »

No need to tell mortgage lender. This is not a tenant.

Telling them may cause confusion as the customer services bods may not understand the difference.

The £4,250 RARC allowance covers whatever you are paid - it does not differentiate between rent, utility bills, contribution to loo-paper oranything else.

00ec25

Cornucopia wrote: »

1. It's just the rent - it's intended to be a very simple tax treatment.

absolutely WRONG
the rent a room allowance covers all and any form of income you receive that includes "contributions" to bolls

the whole point of the RAR is that it means you do not have to keep detailed records of your costs so that you can work out your taxable profit

your taxable profit is cash received ("rent" ) - costs (utility bills, council tax, etc). If you sue the RAR you do not have to list these items as you simply pay tax on the total income you receive in excess of £4,250pa

Note if your lodger contributes towards housekeeping (toilet paper, milk cereal coffee etc) then that is extra income for you which would be offset by the extra costs you incur - hey presto - that is also part of your income and is part of the RAR limit

00ec25

posterboy wrote: »

Thanks all,

Monthly charge I was thinking was £450 (Rent £350 + Bills £100), therefore annual turnover of about £5,400. Does this mean that I have to pay tax on £ £1,150 (£5,400 - £4,250)?

Thanks again.

yes
you would have to pay tax on £1,150

also note that because you have gone over the limit you must notify HMRC and they may or may not require you to do a full blown tax return
if they don't, then they may let you get away with a simple letter notifying your figure as above and they will adjust your tax code to collect the tax

Yorkie1

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

May be simplistic but it says that if you earn over the allowance, you must do a tax return and claim the allowance back through that route.