Rent a room scheme

FirstTimeBuyerQuestions

I'm looking to buy a house that would have two spare rooms that I could potentially rent out to lodgers (I'd be taking one of the other rooms).

Does the Rent a Room Scheme have any constraints in regards to how many rooms you can rent out? Or is it purely the income you take in? (And also would it be anything over that amount you'd pay, and not on the first 3.5k?)

FirstTimeBuyerQuestions

I just answered my own question:

Another problem to beware of is that the rent-a-room scheme can only render rent from one room in your own home tax-free – and you won’t be able to claim expenses that other landlords can use to offset profits and reduce tax. For example, landlords outside the scheme can claim accountants’ fees, maintenance and repairs – but not improvements – utility bills, council tax, as well as interest on a mortgage and the direct costs of letting the room.

http: //blogs.telegraph.co.uk/finance/ianmcowie/100022340/expert-tips-on-how-to-make-a-tax-free-income-from-your-home/

But this is worded a bit poorly. Can I or can I not claim tax back on utility bills and interest on a mortgage?

pyueck

If you opt for rent a room scheme you cannot offset costs against tax, but get the first 4250 of rent a year tax free.

FirstTimeBuyerQuestions

pyueck wrote: »

If you opt for rent a room scheme you cannot offset costs against tax, but get the first 4250 of rent a year tax free.

Sorry I should have been clearer. If I didn't opt in and instead just went down the route of having everything taxed but instead claiming back tax on expenses, would I be able to claim back on:

- Utility Bills
- Repairs such as re-tiling the roof or the boiler breaking down
- Mortgage Interest

?

pyueck

yes but you must apportion to the amount by the % being let.

booksurr

FirstTimeBuyerQuestions wrote: »

I just answered my own question:

http: //blogs.telegraph.co.uk/finance/ianmcowie/100022340/expert-tips-on-how-to-make-a-tax-free-income-from-your-home/

But this is worded a bit poorly. Can I or can I not claim tax back on utility bills and interest on a mortgage?

that is not just poorly worded, it is WRONG

there is no limit to the number of lodgers you have under RAR. The limit is simply that if you elect to use RAR only the first £4,250 of gross income per year is tax free.
If your total rental income is more than 4,250 you pay income tax on the excess, eg: receive 4,500 rent you pay tax on 250 and get 4250 tax free

the whole point of RAR is that if you use it you cannot claim ANY costs against your income, that is why you get a tax free allowance in the first place. RAR simplifies the record keeping required because you cannot claim costs therefore do not have to record them!

rather than read the newspapers why not read the gospel:
https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet
(and yes before you object you ARE a trader)

also note that if you have more than one lodger in your home you lose your claim to private residence relief and instead are exposed to Capital gains tax, although you can claim up to £40,000 of Letting Relief instead so would still have to go some to actually end up paying any CGT despite being liable... 1st para, page 3:
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet

booksurr

FirstTimeBuyerQuestions wrote: »

Sorry I should have been clearer. If I didn't opt in and instead just went down the route of having everything taxed but instead claiming back tax on expenses, would I be able to claim back on:

- Utility Bills
- Repairs such as re-tiling the roof or the boiler breaking down
- Mortgage Interest

?

as pyueck says your costs must be apportioned

if you do not choose to use RAR then by default you are using the "normal" method and so can claim costs

you will then need to be aware of the distinction between a capital cost and a revenue cost as not everything is allowable against income tax, Repairing a roof = revenue cost. Replacing a roof = grey area and may be deemed to be an "improvement" and so capital. Potentially the same applies to a new boiler but not its repair

gazter

To work out which one is best for you, work out if your accountable costs would be higher than the tax you would be not paying on the RAR allowance.

If you are a standard rate taxpayer it would be 20% of £4250, so £850. The more you breach the £4250, the more it would probably work out better to set costs against your income.