Capital Gains Tax - Rent a room

HappyMJ

There's been some debate on the housing forum with many posters absolutely convinced that letting rooms to more than 1 person would create a capital gains tax liability.

What I want to know is --

Is capital gains tax is due if you have a 3 bedroom house and let 2 of the rooms out to 2 different people?

The other thing is I have absolutely no record of when I've done this over the last 14 years of ownership of my property. The income I got was always under the rent a room scheme allowance of £4,250 per year so there was never any need to keep records. I seriously wouldn't have a clue.

What would the HMRC do if they figured out that I was letting rooms out to several people over the years and didn't declare that when I sold the property? The lodgers did register for the electoral roll so they would have some evidence of occupation of the premises.

Skint_yet_Again

Gov.uk info re capital gains

You may have to pay Capital Gains Tax when you sell your home if:

• you let out all or part of it
• you’ve taken in more than 1 tenant or lodger at a time

https://www.gov.uk/rent-room-in-your-home/rent-bills-and-tax

I'm sure someone with more knowledge than me will be along to give you further advice.

quietriot

http://www.hmrc.gov.uk/manuals/cgmanual/cg64702.htm

If you take in more than one lodger then you would lose some of your private residence relief. Depending on time and amounts of any gain, this may result in a tax liability.

HappyMJ

So I'm stuffed then. I'll just have to have a wild guess. How's it worked out? Do you count both lodgers rooms or just the extra 1 above the single lodger allowance? I'm not selling yet but I will have a CGT liability when I do sell as the whole property is now let to tenants.

booksurr

Lol
I posted all the relevant links on your other thread on the housing board
https://forums.moneysavingexpert.com/discussion/comment/68778803#Comment_68778803

HappyMJ

booksurr wrote: »

Lol
I posted all the relevant links on your other thread on the housing board
https://forums.moneysavingexpert.com/discussion/comment/68778803#Comment_68778803

Yes I can see the links but they aren't clear at all. How do you work out the tax? I have never given a specific room to a lodger just a right to stay at my house in return for some cash. I've provided the furniture and said you can sleep over there in that room this week and moved them around a few times. One lodger wanted to always sleep in the lounge on the sofa bed. How do I calculate that? It's my lounge. He never ever slept in the bed that I said he could sleep in. As I said I never kept records so I'll just have to guess.

Morganic

The computations involve both the amount of time you had more than one tenant, and the percentage of the house that was rented out.

Example: Suppose you sell after 20 years. You had more than one tenant for 5 years of that. That's 25% of the time

Now assume that second tenant rented about one third of the house.

Combining those, your property was one third of 25% a rental, or 8.33% rental, and 91.66% PPR

Therefore you would pay CGT at the rate of 18% of 8.33% of the net gain (which is net proceeds minus capital improvements minus original net purchase price)

Of course, if there are no records of any of this, as you stated, then how would anyone be able to question whatever numbers you volunteered?

booksurr

Morganic wrote: »

The computations involve both the amount of time you had more than one tenant, and the percentage of the house that was rented out.

agreed

Morganic wrote: »

Example: Suppose you sell after 20 years. You had more than one tenant for 5 years of that. That's 25% of the time

Now assume that second tenant rented about one third of the house.

Combining those, your property was one third of 25% a rental, or 8.33% rental, and 91.66% PPR

Therefore you would pay CGT at the rate of 18% of 8.33% of the net gain (which is net proceeds minus capital improvements minus original net purchase price)

Of course, if there are no records of any of this, as you stated, then how would anyone be able to question whatever numbers you volunteered?

please can you provide a source for your idea and explain why you have ignored letting relief when HMRC expressly state that more than one lodger (you use the word tenant incorrectly) results in a claim to letting relief not PRR