Quick Rent a Room Question

Miss_Merlot

Hi all,

As a new homeowner looking to let a room to a lodger, I have read up on various sites about the Rent a Room scheme, but I cannot find an answer to the below question (probably a silly one).

Do I have to let HMRC know at the start of taking in a lodger if the projected income is over the tax threshold of £4,250, or only when the lodger has been in for such a time that their monthly rent is nearing this threshold...?

I ask as we are planning to take in a lodger at £500 for 6 months only, so shouldn't exceed this limit. However, if we didn't declare it and the tax office found out we had a lodger and based their investigation on projected earnings, it would appear more.

Just a bit paranoid as I work in a security cleared issue and don't want to inadvertently break a law!

Thanks all for any advice

dm20

HMRC guidance HS223 says:

The exemption limit of £4,250 is not reduced for periods of letting of less than 12 months.

You don't need to tell HMRC if you're total receipts will be less than £4,250 gross within any tax year. There is no monthly pro rata calculation. You could even let out a room for the 6 months before April 6th and the 6 months after April 6th, and provided you were within the limit in both tax years you will still receive the automatic tax exemption.

Even if you received more than £4,250, if you started renting out now you would not tell HMRC how much you had actually received (by way of tax return) until the end of the tax year in April 2014.

Hope this helps

Miss_Merlot

Thanks very much

Zebradong

I am a very soon to be new landlord taking in a lodger. My earnings will go above the £4250 (as I live in London and the mortgage is high!)

I am charging rent inclusive of bills to make things easier, is there any way of separating this so that it I don't have to pay tax on the section that will cover bills?

£150 a month of the inclusive rent is needed to cover half the bills (it will be just me and the lodger) and it seems a bit unfair if I am paying tax on this as 'profit' when it is actually going straight to the utilities and council tax etc.

Thanks

Kynthia

Zebradong wrote: »

I am a very soon to be new landlord taking in a lodger. My earnings will go above the £4250 (as I live in London and the mortgage is high!)

I am charging rent inclusive of bills to make things easier, is there any way of separating this so that it I don't have to pay tax on the section that will cover bills?

£150 a month of the inclusive rent is needed to cover half the bills (it will be just me and the lodger) and it seems a bit unfair if I am paying tax on this as 'profit' when it is actually going straight to the utilities and council tax etc.

Thanks

No, all income you receive that exceeds the allowance must be declared. You could always see if the income less expenses method leaves you any better off?

A limit is picked for a reason and you could argue that those in the South East are worse off as the 'going rate' for a lodger is higher and therefore more likely to be taxed. Or you could say that if there's just the 2 of you, you are making more profit than others as would your bills really half if the lodger left? We just have to work within the scheme as it is.

katejo

Kynthia wrote: »

No, all income you receive that exceeds the allowance must be declared. You could always see if the income less expenses method leaves you any better off?

A limit is picked for a reason and you could argue that those in the South East are worse off as the 'going rate' for a lodger is higher and therefore more likely to be taxed. Or you could say that if there's just the 2 of you, you are making more profit than others as would your bills really half if the lodger left? We just have to work within the scheme as it is.

The aspect of this which I find unfair concerns council tax . A single person only gains £4250 minus single person council tax discount while a couple benefits from the full £4250.

G_M

katejo wrote: »

The aspect of this which I find unfair concerns council tax . A single person only gains £4250 minus single person council tax discount while a couple benefits from the full £4250.

But 2 occupants generate more rubbish which the council has to collect. More likely to make 999 calls for help. Use the other council services more. Hence the loss of single person discount.

katejo

G_M wrote: »

But 2 occupants generate more rubbish which the council has to collect. More likely to make 999 calls for help. Use the other council services more. Hence the loss of single person discount.

Yes but a household of 2 which takes a lodger will also create more rubbish etc but benefits from the full rent a room discount