Rent A Room Scheme

notional

I am renting out a room in my flat, which I rent from a Housing Association. (Yes I DO have the HA's permission to have a lodger!). The annual rent paid by my lodger is £4800, which is over the £4250 tax free limit on the Rent A Room scheme, but less than I pay in rent to the HA. The lodger does not have any bills in their name, ie their £4800 includes everything.

I could choose to be in the RAR scheme this year, and just take the hit and pay the tax on the £550 excess, but I would like to try not to. Does anyone know what the allowable expenses are if I choose to opt out of the scheme? Eg could I offset the whole of my rent to the HA, which would produce a clear loss? Or would I need to split the rent in half as there are two of us living here, and add on anything else I can think of, eg half the gas, electric bills etc, a mattress I bought etc?

There is no guidance anywhere I can find on HMRC's websites about what you are allowed to offset. Has anyone opted out of RAR? Thanks

phill99

You really don't think you will be able to offset the whole of your rent do you? I'll be surprised if you could even get 50% as you wouldstill have to pay the whole rent even if you didn't have a lodger.

notional

Does anyone else have any actual experience of this? In some of the HMRC guidance it gives examples where the expenses are in excess of the income, but gives no clue as to what they are allowed to be.

Guest101

notional wrote: »

Does anyone else have any actual experience of this? In some of the HMRC guidance it gives examples where the expenses are in excess of the income, but gives no clue as to what they are allowed to be.

You want help evading tax?! Sorry not going to happen.

Pay what you owe.

Just to clarify

1: you don't need remission to get a lodger.
2: the expenses to offset against do not include the roof over YOUR head.
3: the tax you would owe is likely to be in the low £100 mark. Why are you so desperate to avoid such a small amount?!

notional

Thanks Guest 101 for your 'helpful' remarks. I have a lodger because I am living on a very low income. £100 is quite a lot of money to me, FYI. I am not seeking to 'evade' tax. My question was about staying within the rules.
If someone could reply who has actual experience of lodgers and tax in a rented place, instead of people who want to judge me, that would be so great.

msralmjs

I'm no expert but if you're on a low income perhaps you could talk to a tax expert about if there's any way you can recover tax through PAYE. Don't jnow if you can, but that might be the better avenue to explore.

You might also, frankly, want to think about whether the current place you have is too big and if the net income you receive from the rent outweighs additional costs for living in a larger property.

HappyMJ

notional wrote: »

Thanks Guest 101 for your 'helpful' remarks. I have a lodger because I am living on a very low income. £100 is quite a lot of money to me, FYI. I am not seeking to 'evade' tax. My question was about staying within the rules.
If someone could reply who has actual experience of lodgers and tax in a rented place, instead of people who want to judge me, that would be so great.

It's not really worth the risk. If one of your expenses is non-allowable then you'll have to pay tax on that. Do not rely on what I post below go and speak with the HMRC.

You can claim for the cost of the room based on the floor area of that room as part of the whole property. For example a 12 square metre room in a property that is 60 square metres and you can claim 20% of every expense you can think of to do with the whole property. Rent (as you've got a larger property than you would have otherwise have had), gas (as more gas is used), electricity, water, council tax (you could possibly argue the banding is higher due to the larger property), phone, broadband (if advertised with broadband available in the room) and even Sky if you've advertised that the room has Sky available. Anything you've done in the room itself such as painting, new carpet, furnishings you can claim 100%. Anything you do only in the other rooms you can't claim anything. The shared rooms you would have had to pay for anyway no matter the size of your property or if you did not have a lodger so you can't claim anything for those rooms....just the one bedroom and if it has a private en-suite bathroom that room too.

Personally I wouldn't take the risk and just pay the £100.

notional

I am still baffled by the HMRC rules though. On the list of allowable expenses if you DO NOT join the RAR as listed on gov.uk (sorry this forum won't let me include a link but it's called Renting Out Your Property (England and Wales)) it quite clearly includes rent, utilities etc, and it does not mention reducing the proportion if you live in the property yourself, in fact it makes no mention anywhere of what to do if you live in the property. Help Sheet 223 gives an example where a man is letting a room in his own home and his allowable expenses are £4500, which must surely be more than just the gas bill and the odd lick of paint?
Surely this can't be an uncommon situation. Has anyone any direct experience to contribute?

HappyMJ

notional wrote: »

I am still baffled by the HMRC rules though. On the list of allowable expenses if you DO NOT join the RAR as listed on gov.uk (sorry this forum won't let me include a link but it's called Renting Out Your Property (England and Wales)) it quite clearly includes rent, utilities etc, and it does not mention reducing the proportion if you live in the property yourself, in fact it makes no mention anywhere of what to do if you live in the property. Help Sheet 223 gives an example where a man is letting a room in his own home and his allowable expenses are £4500, which must surely be more than just the gas bill and the odd lick of paint?
Surely this can't be an uncommon situation. Has anyone any direct experience to contribute?

It could also include a proportion of the interest charged on the whole property which could be quite high. It could also be a carpet and new bed for the room.

If all of your rent could be included then you would make a loss which you could offset against other lettings income. The HMRC wouldn't allow you to effectively make the whole of your own rent a tax deduction. You could choose to rent a large 5 bedroom house and let out a small single room out and get a massive tax rebate each year. That wouldn't happen. Don't try and claim 100% of the expenses. You can only claim the business proportion of the expenses of providing a furnished room. You can calculate that based on floor area.

kinger101

HappyMJ is right. The £110 in tax is not worth the hassle of filing a tax return, and the potentially dealing with a informal of formal inquiry into the return. You'll more than spend that money once you need to employ and accountant to deal with HMRC.

From 6 April 2016, the relief increases to £7500 per annum, which solves your problem anyway.

bouicca21

How much is your time worth? As I understand it if you go down the allowable expenses route you will have to treat renting as a business and complete a tax return accordingly. So you would be able to claim for a proportion of the utilities, costs of decorating that particular room, cost of providing laundry service, meals etc for the lodger. For all of which you'd have to provide an audit trail. Unless you are an accountant or have basic accountancy skills plus lots of paper to back up your claims, I'd think it was well worth saving the faff and paying the extra 100 quid under the rent a room scheme.