Rent a room scheme etc tax implications

blushingbride_3

Hi there

I currently have a lodger and a friend has asked if I have a room for her.

I do but I need to do the maths.

I earn £35k including car and fuel
I have a rental property getting £995 a month £

I have my current lodger £4428 a year which is rent a room cap.

So I know I am already in my 40% with the rental property?
Is it worth having someone else in the house or will I loose lots on tax?

When I do expenses what is included?

Utilities?
council tax?
mortgage?
insruance?

Thanks

anselld

blushingbride wrote: »

Hi there

I currently have a lodger and a friend has asked if I have a room for her.

I do but I need to do the maths.

I earn £35k including car and fuel
I have a rental property getting £995 a month £

I have my current lodger £4428 a year which is rent a room cap.

So I know I am already in my 40% with the rental property?
Is it worth having someone else in the house or will I loose lots on tax?

You earn more you get taxed more. You don't "lose". Would you turn down a pay rise because you would pay more tax?

blushingbride wrote: »

When I do expenses what is included?

Utilities?
council tax?
mortgage?
insruance?

Thanks

Under Rent-A-Room you cannot claim any expenses.

blushingbride_3

Hi i understand the more I earn the more I get taxed, I want to work out if its worth the extra inconveniences, i.e how much I would be left with after tax.

I mean what expenses would be included if I was not on the rent a room scheme.

I understand what you are saying but I have heard of people avoiding going into the higher tax bracket so there must be reasons for it.

Cisco001

How about pay more on pension?
I knew some people who are slightly over put more money to company pension to bring it down to 20% bracket.

blushingbride_3

I can look into that thanks

Just if they tax me alot then its not worth the hassel but could be nice having someone else around

booksurr

blushingbride wrote: »

I can look into that thanks

Just if they tax me alot then its not worth the hassel but could be nice having someone else around

never ceases to amaze me how higher rate tax payers cannot understand what earning extra money means in relation to a percentage based tax system.

- define "a lot"

- if you were offered a 60% pay rise would you really consider that to be "not enough" to bother taking?

the worst possible case is you will suffer 40% tax on everything, so you get to keep £60 from every £100 you receive. What is so distressing about that?

note

1. the RAR allowance is £4,250, If you have been charging £4,428 then you are already committing tax evasion on the excess income and owe £71.20 pa tax (40% rate)on your excess over the RAR

2. if you have 2 or more lodgers then you lose the right to private residence relief (but get letting relief instead, with a £40,000 cap) and become liable to CGT when you sell up

questionss

The thing with taking an extra lodger is that if the OP was going to be taxed 40% of that lodgers rent to tax then he would have to charge sufficiently so that 60% of the rent covered the increased bills etc and compensated enough for the loss in privacy - without making his rent higher than market rate.

Intresting to know however about the capital gains consideration if you have 2 lodgers. Thanks

blushingbride_3

yes thanks @questions that is the dilema.
Captial gains is now a factor too.

I appolgise @booksurr I made a mistake with my figures, my current lodgers rent does not exceed the amount included in the RAS

gazter

booksurr wrote: »

never ceases to amaze me how higher rate tax payers cannot understand what earning extra money means in relation to a percentage based tax system.

- define "a lot"

- if you were offered a 60% pay rise would you really consider that to be "not enough" to bother taking?

the worst possible case is you will suffer 40% tax on everything, so you get to keep £60 from every £100 you receive. What is so distressing about that?

What is so distressing in losing £40 in every £100? Well, losing £40 in every £100 is massively distressing.

Under the rent a room he is letting one room out and getting £350 a month tax free.

If he rents the second room for the same amount £350, as a basic rate tax payer he'll only get £270 a month. As a higher rate tax payer he'll only end up with £210 a month.

The hassle, trouble, extra cost and loss of privacy of sharing one room in a house is worth £350 a month to the OP. Is sharing a second one with all the extra associated costs worth it for an extra £210 a month?

Possibly not.

blushingbride_3

I always thought this was a friendly forum but the way some of you come across is unfriendly.
My hank you to those who have explained the implications

£40 in £100 is a lot when I consider the loss of privacy, space & increase in bills.

I assume out of the RAR I can take off expenses and that will save abit?

I will research over the weekend about expenses and read for myself

Cisco001

blushingbride wrote: »

I always thought this was a friendly forum but the way some of you come across is unfriendly.
My hank you to those who have explained the implications

£40 in £100 is a lot when I consider the loss of privacy, space & increase in bills.

I assume out of the RAR I can take off expenses and that will save abit?

I will research over the weekend about expenses and read for myself

I think you need to focus on lost of PPR relief and CGT when selling.
If I am in your situation, I won't take second lodger.