Taking in lodgers and Capital Gains Tax liability

m1ntie

In January 2004, I purchased a 5 bed roomed detached house in need of modernisation for £250,000. In October 2004 I started taking in lodgers, which I am still doing today – letting between 1-3 rooms, I declare the rental income to the IR and have opted for the “rent a room scheme”. I have lived in the house as my sole residence since I purchased it and will continue to do so.

I have recently been approached by a property developer who wishes to purchase my house along with several neighbours properties in about 6 months time. This would give me a capital gain of about £250,000.I have been told by a friend, that because I rent out more than 1 room it will be subject to capital gains tax.

My research would suggest that the revenue calculate the gain on the rented out part of the property as a % of the total floor area of the property and that only the rooms used exclusively by lodgers are included – common areas such as the kitchen and bathroom etc are not. Is this correct? If so, can I include my large detached garage in the total area of my house.
I have done a calculation of probable tax due using information I have found on the web and would be grateful if anyone could advise me if my calculation below is roughly correct.

Total floor area of house 1500 sq ft

Area of 3 let rooms 448 sq ft
Therefore % of rented out area = 30%

Capital Gain £250,000 x 30% = £75,000
Less taper relief of 10% = £67,500
Less letting relief of £40,000 = £27,500
Less £9200 CGT personal allowance = £18,300 taxable gain.

I would be grateful for any comments or advice.

Regards M1ntie


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