Renting out a room in my home - contract / tax advice

noisla

booksurr wrote: »

if you have one lodger then you retain PRR, - read HS283 ...

Very useful, thanks.

booksurr wrote: »

why do you think rent a room scheme exists ?
a lodger moves in, you receive money from them so your income increases, fact of life: income is taxable.

I do see the point you are making: that we should be grateful for any tax break as all income should be taxable by default.

However, "why do you think the RAR scheme exists" is exactly the one that lead me to ask all my questions. The stated aims at its inception were NOT to save a few pennies for middle class homeowners. They were to:

(1) encourage people to rent out a room, to increase the housing stocks at a time of shortage of affordable housing; and

(2) make it simpler for people who rent out a room, so they don't have to complete tax return / other self assessment with HMRC.

These aims are no longer met. According to Shelter, 60% of room rents were above the threshold already in 2009. Rents seem to have been going up at around 10% pa since then. Halifax's figures show it costs on average £100 a month more to rent than buy a home. For example, I will not be renting out any other rooms in my house, simply because of the income tax impact. There are other ways to increase the tax burden on middle class homeowners if desired, but RAR really misses an opportunity to make housing more affordable.

Anyway, I am veering into a political rant now... genuinely thanks for the RAR advice!


http://www.telegraph.co.uk/finance/personalfinance/money-saving-tips/6499479/Rent-a-Room-scheme-Shelter-calls-for-bigger-tax-breaks.html

http://www.theguardian.com/money/2014/aug/23/buying-home-cheaper-renting-average-tenant-halifax

http://www.home.co.uk/for_rent/current_rents_by_town.htm

AFK_Matrix

Hope you don't mind me butting in lol.

I am no tax expert so want to just clarify somethings. I am wanting to rent my room out at £400 pcm. So that is 550 above the RAR limit and I assume it is a tax of 20%? So I would ow £110 tax per year.

So all I have to do every year in April is to fill out a Self Assesment form declaring just this extra income is that correct? Do you have to provide proof of how much the lodger has paid?

Thanks.

booksurr

AFK_Matrix wrote: »

So all I have to do every year in April is to fill out a Self Assesment form declaring just this extra income is that correct? Do you have to provide proof of how much the lodger has paid?.

you fill out a tax return declaring all income you received and any tax already paid, ie figures per your P60, you also include any interest on non ISA savings plus any dividends received, you declare the gross rent received, you tick the box to claim RAR the system deducts 4250 (assuming done online) and gives you a tax net figure. You pay the tax owed...

it is called SELF assessment for a reason, you submit the return, nothing else.

If you are selected for investigation (and every year a few are) and you are found to have lied or cannot prove a figure you declared because you have not kept your records/paperwork you will incur the repercussions of your error

AFK_Matrix

booksurr wrote: »

you fill out a tax return declaring all income you received and any tax already paid, ie figures per your P60, you also include any interest on non ISA savings plus any dividends received, you declare the gross rent received, you tick the box to claim RAR the system deducts 4250 (assuming done online) and gives you a tax net figure. You pay the tax owed...

it is called SELF assessment for a reason, you submit the return, nothing else.

If you are selected for investigation (and every year a few are) and you are found to have lied or cannot prove a figure you declared because you have not kept your records/paperwork you will incur the repercussions of your error

Awesome thanks booksurr. Will have fun with this next April then as going to try and get a lodger in this month.

noisla

Can you get HMRC to adjust your tax code instead? Or do you have to register for self-assessment?

AFK_Matrix

noisla wrote: »

Can you get HMRC to adjust your tax code instead? Or do you have to register for self-assessment?

Hi Noisla,

I did read about having it deducted out of my Income. Tried to get through to HMRC but was on hold for ages, will try again though as this would be the easier option. I will look into the self asessment thing this weekend as well and see what needs to be done but I think I can just fill it in online.