Lodgers, partner, rent and tax!

ash0803_2

Hi guys,

Thanks in advance for any advice received.

I am aware of the rent-a-room scheme and how it works. However, it is not clear what happens with a live in partner.

In my current situation, I am living with my partner. I pay the mortgage and she contributes to the mortgage/bills. I have read in places that this "income" is not taxable and not needed to be declared. Is this correct? Any links?

I am planning to take on 1 or possibly 2 new lodgers in the near future and will collect rent off them. So I will be living with partner and potentially 2 lodgers.

Am I correct in assuming that the income from the lodgers will count as rent income and go towards the rent-a-room allowance and the money I receive from my partner can still go undeclared??

Thanks

nidO

If you and your partner are living together as a couple, any money she contributes towards your combined living expenses is exactly that and is not "income" and so neither needs to be declared or contributes towards your £4250 rent-a-room allowance.

The first easy corroboration of this I can see is the second question/answer at:

http://www.advicenow.org.uk/living-together/money/readers-questions-money-html,616,FP.html

As such you do have the full £4250 rent-a-room allowance available should you take in any lodgers paying you income.

G_M

But bear in mind that the fact she is paying towards the mortgage could give her property rights if, in the future, you separated.

You can't have it both ways I'm afraid:

Either she is paying you rent (income, so taxable subject to the rent-a-room scheme etc) which you can spend how you like,

OR she is paying towards the mortgage, which gives her rights towards the equity in the property (as would be the case if she paid for improvements like an extension etc

ash0803_2

Thanks for the reply. It still seems a fine line between what is a lodger paying rent and "contributing". I am probably going to decide to set a fixed amount for her to pay to help contribute towards the bills and mortgage.

But then again I would probably charge the lodgers a fixed amount as well. So how does this differ?

ash0803_2

G_M wrote: »

But bear in mind that the fact she is paying towards the mortgage could give her property rights if, in the future, you separated.

You can't have it both ways I'm afraid:

Either she is paying you rent (income, so taxable subject to the rent-a-room scheme etc) which you can spend how you like,

OR she is paying towards the mortgage, which gives her rights towards the equity in the property (as would be the case if she paid for improvements like an extension etc

Thanks for the reply. I understand what you're saying but this brings up more questions for me.

How do I define that the money she contributes is going towards the mortgage? Let's just ignore the fact that she may have a claim to the property or the lodgers.

What's stopping me from saying all my lodgers are contributing and only declaring any "profit" I make as income? Obviously I'm trying to pay less tax but I'm don't want to break the law. I'm just trying to understand how it all works.

nidO

ash0803 wrote: »

But then again I would probably charge the lodgers a fixed amount as well. So how does this differ?

It's really down to how you see yourselves living with each other - If you are living together as a couple in the house and are sharing the house then any money she pays you to contribute towards bills (whether its a percentage of costs or a fixed amount) is your joint payment of the bills and not income, whereas a lodger has a defined subset of your property licensed as their own and is paying you an income for the use of it.

nidO

ash0803 wrote: »

What's stopping me from saying all my lodgers are contributing and only declaring any "profit" I make as income? Obviously I'm trying to pay less tax but I'm don't want to break the law. I'm just trying to understand how it all works.

Basically, its how you can defend your living arrangement if the question ever arises.
"She's my girlfriend and lives with me and contributes towards bills" = fine, whereas "She's my girlfriend and these two blokes are also my boyfriends and we're all one big happy family living together but they have their defined areas within the house to call their own" = going to raise eyebrows and have HMRC down on you.

The test is basically whether your living arrangements can be defined as a "family unit", if you're living together as a couple and sharing the house then you're fine, as members of a "family unit" jointly being responsible for household expenditure has no tax liability.

Alter_ego

Lodger would also have a rent book, presumably your partner won't?

ash0803_2

nidO wrote: »

It's really down to how you see yourselves living with each other - If you are living together as a couple in the house and are sharing the house then any money she pays you to contribute towards bills (whether its a percentage of costs or a fixed amount) is your joint payment of the bills and not income, whereas a lodger has a defined subset of your property licensed as their own and is paying you an income for the use of it.

As mentioned previously, I now understand the concept but how do you define it so that not all lodgers can say they are sharing the house and just contributing towards the bills?? The lodgers moving in will be my close friends.

Let's make an example and assume my mortgage + bills comes to £1000 per month. My gf contributes £400 per month. 2 of my close friends move in and pay me £400 per month each.

So now I have an income/contribution of £1200 which is £200 more than my outgoings.

It seems the standard decision is to not declare gf's contributions but declare £400x2 as income.

Why can't I take my friends' money as "contributions" as well? Obviously this can't happen otherwise everyone would be exploiting this loophole. What am I missing?

ash0803_2

nidO wrote: »

Basically, its how you can defend your living arrangement if the question ever arises.
"She's my girlfriend and lives with me and contributes towards bills" = fine, whereas "She's my girlfriend and these two blokes are also my boyfriends and we're all one big happy family living together but they have their defined areas within the house to call their own" = going to raise eyebrows and have HMRC down on you.

The test is basically whether your living arrangements can be defined as a "family unit", if you're living together as a couple and sharing the house then you're fine, as members of a "family unit" jointly being responsible for household expenditure has no tax liability.

This is starting to make more sense. Thanks

theartfullodger

nidO wrote: »

If you and your partner are living together as a couple, any money she contributes towards your combined living expenses is exactly that and is not "income" and so neither needs to be declared or contributes towards your £4250 rent-a-room allowance.



.....

Yes for income tax, not for several benefits..

Are you in receipt of any benefits??