Can I use 'rent a room' for my house but expenses basis for other property?

scarletjim

In my house, I rent out 2 rooms. I also rent out a flat. I started this last year, so my first tax return is due in a few months time.

I am hoping I can use 'rent a room' for my 2 lodgers, which effectively means roughly paying no tax on 1 of them, but the full 40% for the other 1.

I would then like to treat my flat as a separate rental business, allowing me to deduct the (huge) maintenance contract charge, and 10% W&T, reducing my tax liability considerably.

Is the above allowed, or do I have to treat my entire rental income as RAR if I used that basis for my house?

Can anyone direct me to any guidance online (ideally something a little more formal than discussions in forums if possible) - I've searched for hours with all sorts of Googled combinations of words, but I can't find anything which covers people who rent out one or more rooms in their house, and ALSO rent out another property.

Many thanks to anyone who can advise.

CKhalvashi

I've used the RAR scheme before now, whilst letting several other properties.

Speak to HMRC.

CK

scarletjim

I've asked HMRC about a couple of related things in the last 12 months, both times I've been told 'sorry but we can't advise on specific tax matters' (!) or words to that effect.

Nicola_Ed

Hi

My reading of the HMRC guidance below is that yes you cam claim RAR relief.

PIM4012 - Rent-a-room: more than one source

Summary

To decide whether rent-a-room applies, it is necessary to look at the total income from all relevant sources. You may need to think carefully about cases where there are several sources.
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Technical detail

If the taxpayer has more than one dwelling producing letting income, income from the only or main residence can only be within rent-a-room if it is a separate source from the income from other properties.
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Two sources in the same residence

The taxpayer may have two rent-a-room sources in the same residence, for example rental income from a lodger and trading income from a bed and breakfast business. But the rent-a-room rules must be applied to all sources in the residence, because it is immaterial whether the rent-a-room receipts are treated for tax purposes as derived from one source or from two or more separate sources.
It would be incorrect to exempt one of the sources in isolation because it was below the limit, if the combined total was above. All relevant sums in respect of the residence need to be considered. So either they are all in or they are all out.
Where there is more than one source within rent-a-room and the total receipts are above the exemption limit see PIM4030.
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Furnished and unfurnished lettings in the same residence

Rent-a-room applies to furnished lettings only. If the taxpayer has any unfurnished letting in his only or main residence, then he or she is not a qualifying individual. Therefore any furnished letting the same taxpayer has in the same residence cannot attract rent-a-room relief.
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Letting in residence part of a wider source

Income from the only or main residence cannot be within rent-a-room if the taxpayer receives rent from other properties and, on the facts of the case, all rents constitute one source of income (an example would be a guest house business conducted partly in the taxpayer's main residence and partly in a separate property).
Where no trade is being conducted, the ‘source’ will usually be the letting agreement.
Do not make enquiries if the taxpayer presents computations to show the only or main residence as a separate source unless you have good reason to suppose that they are wrong.
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scarletjim

That's extremely helpful, many thanks. Goodness knows how I've not seen that bit when going through all the HMRC pages myself. It seems pretty straightforward to me now within my specific scenario.

Nicola_Ed

No problem.:)

HMRC always like to hide the useful information where you may not find it! Having filled in literally thousands of tax returns in my professional career if you are in doubt on any point, use the notes section of the tax return to explain why you have claimed an expense/relief and then HMRC can challenge this if they disagree.

You may not want to claim RAR relief if you are making a loss but you would need to crunch the numbers.