Rent a room scheme tax

sparky3659

Hi all,

I was just wondering if anyone on here could give me some advice, as the internet is just confusing me....doesn't take a lot!!:(

I have a lodger at home. I charge him £425 per month which obviously takes it over the tax free break of £4250 for the year. I'm also about to move house and take my lodger with me, and this income will raise to £475 per month, therefore £1450 over the tax free break. If I was to declare this to HMRC, what tax would I pay on this? (im actually after a figure or tax percentage). Is this dependent on how much I earn from my own employment?

Thanks muchly- Sparky

00ec25

so at the moment you are evading tax by not declaring it at all?

£475 x 12 = 5,700 - 4,250 = 1,450 taxable excess income

tax payable at whatever your tax rate is so if you remain within the 20% tax band then you pay £290 in tax leaving you with 5,700 - 290 = £5,410 per year in your pocket

the 40% tax rate applies to only the income above £41,865 p.a

sparky3659

Thanks for that. I'm not evading tax at the moment, as I have only had a lodger for a few months, so not near the threshold yet. I was just planning for the future.

Blackbeard_of_Perranporth

Here

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

Delphina

The amount above the threshold is going to be taxed AT LEAST at your highest rate of tax. So if your other income is already tax at 20%, the amount above the threshold will be taxed at 20% or 20% and 40%, depending on your other income
http://www.hmrc.gov.uk/rates/it.htm

jamesmorgan

It should be noted that the default position on tax payment if you exceed the threshold is total income - total expenses. You can only elect to pay tax on the excess if you notify HMRC that you want it to be treated in this way. http://www.hmrc.gov.uk/manuals/pimmanual/pim4030.htm

anselld

jamesmorgan wrote: »

It should be noted that the default position on tax payment if you exceed the threshold is total income - total expenses. You can only elect to pay tax on the excess if you notify HMRC that you want it to be treated in this way. http://www.hmrc.gov.uk/manuals/pimmanual/pim4030.htm

There is no need to specifically notify HMRC other than by the normal tax return ...
"If the taxpayer's return is made on the basis of method B, that may be taken as an election."

Delphina

Just out of interest, if you decide to claim expenses instead of getting the Rent A Room allowance, will there be any Capital Gains tax on the profit from selling the house, despite it being your main home? The term 'business', as per HMRC link provided by Jamesmorgan, looks slightly alarming to me.

holly_hobby

re cgt and 3rd party residents - as long as the tenant is a lodger and is freely able to share all common family areas inc eating together (ie not restricted to separate areas/rooms), no proportionate cgt exposure.

If not, there is cgt on any gain on disposal, on a sum equal to the actual proportionate % occupied by the tenant or tenants (less of course permitted/available reliefs/exemptions).

Holly x

Delphina

Thanks, Holly