Deductible expenses when preparing to let a room ?

FF99

I fully understand that where it is advantageous to use the "Rent a Room" tax option, no expenses are deductible.

However, assuming that I were not to use that option because the rental income from letting a room were significantly above the £4,250 exemption and I opted to be taxed on actual revenue less allowable expenses, I am wondering what I would be able to deduct by way of expenses in this scenario.

The property is a 3 bedroom flat with substantial common parts. It currently only has one bathroom. I would not want to share that bathroom with the lodger, so for the purpose of making the spare room lettable (and thereby also enhancing the rent payable), I am planning to convert one of the bedrooms to a bathroom, in order to give both myself and the tenant our own private bathroom. Is any of the cost of that work deductible ? I am guessing not .....

I have just bought the flat and am planning to decorate, re-carpet and furnish the whole flat, including the room to be let. Will part of those costs be deductible ? If so, how would the apportionment work, where the lodger would have use of common parts (kitchen / sitting dining room) that are being re-decorated etc ? Will the deduction be limited to the costs specifically referable to the room to be let or can they be claimed pro rata on a square footage basis if that works more favourably ?

Almost finally, if I am responsible for paying all the utilities, service charge and council tax and do not receive a contribution for them, would it be reasonable to seek a deduction based on a per capita 50% basis ?

Finally, am I correct that no CGT would ever be payable on an eventual sale, if there is never more than one lodger at a time ?

Any thoughts appreciated !

RAS

Rent a room relief is £7,500 pa from April 1 2016, I think.

FF99

RAS wrote: »

Rent a room relief is £7,500 pa from April 1 2016, I think.

Indeed, a quick Google search now shows that it does (from 6 April) , thank you. Strange there is no mention of this on the HMRC website. Perhaps someone forgot to tell them !

However, even with the increase, it is possible that my questions may still be relevant .....

booksurr

if you expect a single lodger to pay more than £7,500pa after April 2016 it had better be a gold plated bathroom!

1. cost of a bathroom installation is capital expenditure not revenue so count against CGT not income tax

2. apportionment of revenue costs is on the basis of the extra costs incurred in letting, not on the basis of splitting the costs 50/50 just because there are now 2 of you. You would paint and thereof get the benefit from the common parts whether you had a lodger or not.

3. strictly it should be the additional costs you incur over and above what you paid before on your own, not 50/50 as the eligible cost for tax purposes. Any contribution you get towards them is taxable income so could have a profit element if it is 50% of actual costs not marginal cost

4. correct, no CGT

booksurr

FF99 wrote: »

Indeed, a quick Google search now shows that it does (from 6 April) , thank you. Strange there is no mention of this on the HMRC website. Perhaps someone forgot to tell them !

However, even with the increase, it is possible that my questions may still be relevant .....

HMRC website is always in respect of the tax year which people are submitting ie 15/16, it is updated when the year changes and the new rates become relevant.

unless your extra costs are more than 7,500 you questions are irrelevant

HappyMJ

FF99 wrote: »

Indeed, a quick Google search now shows that it does (from 6 April) , thank you. Strange there is no mention of this on the HMRC website. Perhaps someone forgot to tell them !

However, even with the increase, it is possible that my questions may still be relevant .....

You're going to charge more than £625 a month in rent for a room. Must be a good room....or a good area.

You can claim a proportion of your rent/mortgage interest.

If you're single then a 50/50 split would be fair.

Reducing a 3 bedroom property to a 2 bedroom property will probably devalue the property despite adding a bathroom so I would think carefully about your plans.

Instead of converting a bedroom into a second bathroom could you not play about with the layout and install an en-suite in a corner of a room instead. You only need about 3 maybe 2 at a push square metres spare to have a tiny en-suite in the corner. It'll be just enough for a shower and toilet with the hand basin over the toilet.

Similar to

FF99

booksurr wrote: »

if you expect a single lodger to pay more than £7,500pa after April 2016 it had better be a gold plated bathroom!

1. cost of a bathroom installation is capital expenditure not revenue so count against CGT not income tax

2. apportionment of revenue costs is on the basis of the extra costs incurred in letting, not on the basis of splitting the costs 50/50 just because there are now 2 of you. You would paint and thereof get the benefit from the common parts whether you had a lodger or not.

3. strictly it should be the additional costs you incur over and above what you paid before on your own, not 50/50 as the eligible cost for tax purposes. Any contribution you get towards them is taxable income so could have a profit element if it is 50% of actual costs not marginal cost

4. correct, no CGT

Thanks very much. This is in Central London, so for what putting in the bathroom is going to cost me, I agree also that it should be gold plated !!

On point 3, this is a new flat, so if one had to use your 'strict' methodology (the logic of which I fully understand), calculation would be difficult. I suppose that there is no additional service charge from having an extra occupant, which will be far and away the largest cost. Is this something that HMRC would be likely to look at critically ?

I did see something on the HMRC website which suggested that if one opted for taxation on actual profits, capital allowances would be deductible, as in any other business computation. Am I wrong about that ?

Is decoration / furnishing of the room to be let deductible ?

arbrighton

Is it a leasehold? Are you going to be allowed to change the bedroom into a bathroom?

booksurr

FF99 wrote: »

I did see something on the HMRC website which suggested that if one opted for taxation on actual profits, capital allowances would be deductible, as in any other business computation. Am I wrong about that ?

CA apply to (movable) plant and machinery, you are installing fixtures and fittings which are part of the fabric of the building so fall under CGT not IT

FF99 wrote: »

Is decoration / furnishing of the room to be let deductible ?

certainly
available metholdogies would include siuuch as:
2 bedroom, kitchen, lounge (bathrooms ignored in tax). One bedroom let so 1/4 of costs = eligible cost = 25%

let bedroom = 10sq M. total floor area of flat = 100 sqM . Eligible costs = 10/100 = 10%

there is no prescribed exact method, you can choose one that most suits you (ie gives biggest figure!), but you can't do what you suggest in your first post

FF99

arbrighton wrote: »

Is it a leasehold? Are you going to be allowed to change the bedroom into a bathroom?

Yes, it is a substantial red brick mansion block and it is apparently a well trodden path to convert the smallest bedroom to a bathroom.

FF99

booksurr wrote: »

CA apply to (movable) plant and machinery, you are installing fixtures and fittings which are part of the fabric of the building so fall under CGT not IT

Fully understood, and a silly mistake on my part. It's a long time since I had to look at issues like this !