Residence Relief and Lodgers

nicenspicy

Hi,

I own my house and I'm thinking of getting a lodger, and later on I might get more than one lodger. I read somewhere (I can't remember where - sorry) that having 2 lodgers at the same time can affect the Residence Relief on any capital gain when selling the property. I've read about Residence Relief at the HMRC website, but I can't find out how it is calculated for multiple lodgers - all of the examples are about letting the whole property. Does anyone know how it works for lodgers?

It might be useful to consider an example:

Suppose my 3-bedroom house cost 200k and I live in it for 10 years with 1 lodger. Then I sell it for 300k making a gain of 100k. Since I have only one lodger I believe I'd receive the full residence relief of 100k, right? So...

1. How much residence relief would I receive if I had 2 lodgers instead of 1?
2. Is the calculation published anywhere?

Thanks.

holly_hobby

The definition as I understand if from HMRCs stance re lodger(s) is that they have the full run of the house, ie aren't restricted to one set area or set of rooms within the dwelling, and for all intents and purposes, their residency is equal to the owners access to the entire living space.

Thats fairly simple, it can be tricky where there are 2 or more lodgers, as HMRC may try to take this down the business lettings route, and therefore you'll only have proportionate PRR applied to your gain - although to the remainder of each owners personal gain you can obviously apply lettings relief capped at 40k , prev reported CGT losses, annual unused cgt allowance, and their share of costs associated with any improvements, acquisition/disposal and professional fees.

So, even if you lose PRR, and depending upon the actual gain, you may still have nil cgt liability after all deductions etc have been applied.

If you want to keep it simple though, I'd stick to 1 lodger, where there is no quibble with HMRC of full qualification for PRR.

Here's some reading for you, which you may already have noted or not ... but may help ...

http://www.hmrc.gov.uk/manuals/cgmanual/CG64311.htm

http://www.hmrc.gov.uk/manuals/cgmanual/CG64311.htm

Hope this helps

Holly

nicenspicy

Hi Holly,

Thanks for the info - I hadn't seen that link before. After reading it I'd say that having 2 lodgers is fine from a PRR prespective, but the document is also a bit vague and could potentially be interpreted differently, i.e. 2 lodgers could mean letting 2 rooms independently (no restriction on PRR), or it could be a set of 2 rooms in total meaning a possible restriction to PRR, but no details about how much?

I personally think the "set of rooms" refers to a single letting agreement and wouldn't apply to 2 individual lodgers' rooms, which would be 2 single-room lets as described in the 2nd paragraph (i.e. the owner still has full access and therefore gets full PRR). However, it doesn't explicitly say that and I don't think I'd take the chance based on this document alone. I guess I could just ask HMRC!