Buying house to rent out but keep a room?

CIS

For council tax purposes it wouldn't be a HMO if you were resident in the property as you would automatically be the one liable for the council tax charge as the resident owner.

If you weren't ordinarily resident in the property but kept a room anyway then the property would fall to be a council tax HMO and you would be liable for the council tax on that basis.

Mojisola

josh1924 wrote: »

At present I am living with parents and that's how I am looking to stay for a couple more years.

There's no reason why you can't nominate the new place your principle residence and have lodgers. You can still go back to your parents' house at weekends.

Kynthia

More info definitely makes this a little easier. As you don't own where you live now and don't have a spouse (as it's not possible to have a separate primary residence from your spouse for CGT) you can make the new property your principle primary residence.

So you take in lodgers, have a residential mortgage, declare the income for tax, get a gas safety cert, get your post sent there, change your driving license address to there and register for council tax there. Going to visit your parents every weekend to stay in their home shouldn't then affect your PPR declaration.

G_M

Mojisola wrote: »

There's no reason why you can't nominate the new place your principal residence and have lodgers. You can still go back to your parents' house at weekends.

Indeed.

If you had owned a property elsewhere it might be more complex, but this is simple.

Buy a property on a normal residential mortgage. Use the address for your bank, HMRC, employer, driving licence etc etc so it is clearly your primary residence.

Take in a lodger (or 2).

Visit your parents when you want.

LODGERS (Licencees/Excluded Occupiers)
A lodger (broadly) lives in the same property with their resident landlord, and shares facilities. Unlike tenants, lodgers have few rights.

The Housing Act 1988 provides definitions of 'Resident Landlord' and 'same property' (S31 & Schedule 1 (10).

There is advice for landlords considering taking in lodgers here:

LodgerLandlord (21 tips from solicitor Tessa Shepperson + General information site)

Landlordzone (Various articles on taking in lodgers)

Renting out rooms in your home (Government info)

Rent a Room Scheme (Government scheme for tax-free income from lodgers)

josh1924

Thanks everybody for all of your detailed responses. I can't believe that there is a viable solution, this makes me very pleased!!!

From what you guys have said a standard residential mortgage would be the best option for my situation. Thanks for the extra links as well I will take a look at those! I have a couple more questions if that's OK.

Firstly would it be realistic to assume renting out rooms this way with a residential mortgage could make me similar amounts of money to that of a buy to let mortgage? I am hoping to make this an investment still as much as possible. This might be a stupid question.

Secondly is there any professional way of securing lodgers? Letting agencies etc?

Thanks guys

BitterAndTwisted

The issue for you with a BTL mortgage is whether you would qualify for one when you don't already have a residential property to your name. Also you'd need a much larger deposit (25%) and the proposed rent be 125% of the mortgage-payments.

Taking in lodgers is whole world less complicated that being a BTL landlord. You will far more control over the kind of people you allow into your home and what they do in/to it. Lodgers who transgress (your very reasonable rules) can be asked to leave with as little as a week's notice if they're troublesome. You most certanly wouldn't be able to do that with tenants.

A lot of people find lodgers via sites like uk.easyroommate.com, spareroom.co.uk or similar. You need to ask for and see written references, both current landlord and employer, take a deposit, rent in advance in the usual way.

booksurr

what posters forget in the rush to have >1 lodger is that for Capital Gains tax purposes as soon as you have >1 lodger you lose the right to claim Private Residence Relief as you are then deemed top be running a boarding house business rather than simply taking a lodger to help with the bills.

Given that your plan is to take >1 lodger from the outset you will never establish the property as your own main home since you will never occupy it with <2 lodgers and therefore will never establish a claim to PRR....that will make it very expensive in terms of tax when you come to sell.

Kynthia

booksurr wrote: »

what posters forget in the rush to have >1 lodger is that for Capital Gains tax purposes as soon as you have >1 lodger you lose the right to claim Private Residence Relief as you are then deemed top be running a boarding house business rather than simply taking a lodger to help with the bills.

Given that your plan is to take >1 lodger from the outset you will never establish the property as your own main home since you will never occupy it with <2 lodgers and therefore will never establish a claim to PRR....that will make it very expensive in terms of tax when you come to sell.

Booksurr you say taking in more than one lodger is expensive in terms of tax when it comes to sell. However considering the OP's plan was to let the whole property to a tenant, and therefore being fully liable for CGT and tax on the income, I'm not sure how this makes them worse off? This way means they can stay at the property also instead of paying to stay elsewhere on weekdays and can buy with a residential mortgage.

josh1924

Thanks for all the responses everyone. If it's ok I do have a few more questions, apologies if they are silly.

Is there any way of guaranteeing lodgers for long term periods? Or is that down to the initial agreement?

Are there companies that exist which would find and vet lodgers for you? I'm going to be pretty busy the next few months so this would be ideal.

After a period I would like to switch to a buy to let mortgage is this possible?

Would I have any extra costs having lodgers? Or would it just be usual bills, council tax, insurance etc? Trying to do some calculations...

With the rent a room scheme do I earn the £4250 tax free and then anything else over this I pay income tax? Would I get any kind of return doing this after taking into account all my costs? This is still a bit hard to get my head around.

Thanks everyone for all the friendly help

Pixie5740

You need to live with the lodgers (some of the time at least) so you should be involved in selecting them rather than leaving it all up to a letting agent, which will also be expensive.

You can have a fixed term contract for a lodger but that works both ways. If the lodger turns out to be a PITA to live with them you're stuck with them for the duration.

Yes, further down the line you could get a BTL mortgage providing you meet the lender's criteria.

Usual bills really. Council tax, utilities and insurance.

You either use the RAR scheme or you're not. You can't split the income over two different schemes.