Can you pay off your mortgage interest with a rental income of part of your house?

Envisage

If you rent out part of your main residency house (1 room or a separate studio flat of it) and receive e.g. £700 pm rental income then I'm assuming you'd have to declare it on your tax return.

So, can you pay it off against the mortgage interest on your house?

I have a mortgage and pay around £800 on the interest.

Can I use the £700 and pay it against the mortgage interest so that I won't be liable for any further taxing?

Would receiving rental income from the main house impact the Capital Gains Tax when one sells his main home?

00ec25

there is an important distinction here

- if you are letting out as studo flat that implies it is a self contained part of your property , ie it has its own kitchen and bathroom and can be accessed without having to go through your bit of the house.
If that genuinely is the case, then it means:
a) you have a tenant not a lodger,
b) you could claim the interest on the portion of your mortage relating to the studi, so if the £700 is for the whole house you can only claim a part of it against the rental income
c) you absolutely would be liable for CGT on the portion relating to the studio when you sell up

- if on the other hand you have a lodger who shares all faciltieis with you and is not in self contained "studio" then
a) you either operate the rent a room scheme and claim 4,250 pa tax free OR
b) you can operate the "normal" rules ie claim eligible costs in which case only a part of the mortage would be eligible. The latter is becuase it is a dual purpose cost ie part relates to the letting and part of the mortage cost relates to your private residence therefore it needs to be apportioned between the two parts
c) providing you only have one lodger you are nmot liable for CGT, if you have 2 or more lodgers (ie individual rooms not a two people shariung one room as couple) then you again become lioable for CGT

Envisage

Thanks for the response.

Yes, it's mainly the studio flat.

The studio is 15sqm and the house floor area is 90sqm excluding the studio. so the percentage would be like 15/90 of the total £800 interest can be claimed e.g. £133?

What about bills, insurance, council tax, etc?

tizerbelle

Envisage wrote: »

Thanks for the response.

Yes, it's mainly the studio flat.

The studio is 15sqm and the house floor area is 90sqm excluding the studio. so the percentage would be like 15/90 of the total £800 interest can be claimed e.g. £133?

What about bills, insurance, council tax, etc?

1. What do you mean by "mainly" the studio flat?
2. Your maths are out - the total area is 90+15 so the percentage would be based on 15/105 = £114

G_M

Envisage wrote: »

Thanks for the response.

Yes, it's mainly the studio flat.

The studio is 15sqm and the house floor area is 90sqm excluding the studio. so the percentage would be like 15/90 of the total £800 interest can be claimed e.g. £133?

What about bills, insurance, council tax, etc?

You have not really responded to 00ec25's point :

Lodger Vs tenant.

This is a critical legal distinction for many reasons- tax is just one of those.

* Do you have access to the 'studio'?
* do you provide any services? (cleaning? sheets?)
* Is the studio self-contained, with its own sperate front door?
* Does the occupant have access to, or share, any part of your accomodation?
* does the studio have a seperate gas/elecric supply? Heating? Council tax?

agrinnall

I'm sure this will be one of G_M's reasons, but it is a key one, if you do indeed have a tenant, do you have consent to let from your mortgage provider?

Envisage

I do have access to the 'studio' from my house. The studio has 2 doors, one to the road and one to the house which is attached to it. I close/lock that door just.

I don't provide cleaning or sheets change services.

The occupant doesn't have access to the house itself from the studio flat.

The gas/electricity supply all are centric and just one. We just agree on a share of them to be paid.

Does it get classified as Tenant or Lodger then?

15/105 = £114 is correct, thanks for correcting.

00ec25

it sounds like you have a tenant not a lodger. I hope you have issued the correct tenancy agreement form for a tenant and that any deposit you have taken has been protected otherwise you could be in the do do if the tenant gets awkward

you did not answer whether the studio has its own council tax charge? It sounds like it should.

on the basis you have a tenant then all costs must be apportioned between your own use and the business use . 15/105 may be an acceptable method for the mortgage interest, but it may not be the best for your utility costs or council tax especially if you charge the tenant an agreed sum as their share,

remember that you are effectivel letting a house in multiple occupation so you have to declare for tax any money the tenant pays you towards all the bills. Whether you can simply treat the cost incurred by you as being exactly the amount you took from the tenant needs to be clarified. HMRC could suggest that there is a profit element in that the tenant pays more than his fair share of the bill, so is actually subsidising your personal costs