Do I declare I have a lodger?!

paulinetc

Evening all,
I'm in financial difficulties having being left in my current property by an ex. He refuses to sell and I have no where else to live so have to stay here.

In order to help me with my mortgage I have rented a room out to a friend. I've just been looking at the National Debt Helpline website and it says about renting a room our under the "Rent a Room Scheme" and the need to fill out a tax return as this is an extra income.

I had absolutely no idea I needed to declare that I'm renting out a room. He's been here a year now and I'm now worried that I should have declared this? Should my mortgage lender also know this? He is listed on the council tax. Do I need to start this Rent a Room Scheme up and fill out tax returns or how will this effect me if I just carry on as I am? If I need to declare it, then I'm worried that I'll be paying more tax and end up worse off than I would be if I didn't declare it. He pays me £600 a month.

Can anyone help advise?!

Thanks x

booksurr

paulinetc wrote: »

He's been here a year now and I'm now worried that I should have declared this? oh dear - YES Should my mortgage lender also know this? oh dear - read your mortgage T+C, some do, some don't require notification He is listed on the council tax. very good Do I need to start this Rent a Room Scheme up and fill out tax returns yes or how will this effect me if I just carry on as I am? you would be committing tax fraud If I need to declare it, then I'm worried that I'll be paying more tax and end up worse off than I would be if I didn't declare it? if you wish to commit fraud then let us hope your ex reports you to HMRC He pays me £600 a month. oh dear!!!!!

well done for finding out about things, good news is you are still well in time to sort this out before you risk being caught - the answer is in 2 parts

1. for the tax year 6 April 2015 - 5 April 2016
YES you must declare that you have rental income as it is in excess of the max allowed under the rent a room scheme which is £4,250 per year ie. £354.16 per month

you will therefore be taxed on the excess over that amount, for example assuming you are a basic rate taxpayer and have a job which uses up all your personal allowance already you would declare:
income (600 x 12) = 7,200 - RAR allowance 4,250 = 2,950 taxable
tax payable 2,950 x 20% = £590

You will need to register for tax returns and submit your return by midnight on 31 Jan 2017. You can of course submit earlier! You will need to pay HMRC £590 by 31/1/17

obviously the above maths varies if he was not a lodger for all 12 months

2. for the tax year 6 April 16 - 5 April 17

More Good news - the RAR allowance increases to £7,500 so as long as the total income you get in that year remains below that figure you will not have to pay any tax at all on the rent. Whether HMRC will insist you continue to complete SA tax returns remains to be seen as thousands of people will drop below the level and HMRC may decide therefore they no longer need do SA if that was their only source of untaxed income




and before you ask, if you use the RAR allowannce you cannot deduct any costs at all from your income and your income includes EVRYTHING he pays you eg: the rent plus money towards a milk kitty, money towards washing powder, money towards any household expense (bog paper etc), any money he pays you which you don't think of as "rent"

theartfullodger

The terms of your mortgage may require you to let them know. And ex if he has an interest in the property needs to know & would be entitled to a share of the rent (ditto share of expenses & share of costs of mortgage...).

Rent-a-room is OK is total rent is less than £4,250: Going up to £7,500 from 06/04/2016.
https://www.gov.uk/government/publications/rent-a-room-relief-increase
Above those limits yes you do need to do a tax return of some sort.
How much rent (before taking off expenses) will he have paid for 2015/2016??
£600/month is £7,200 pa. London is it?

Depending on what benefits, if any, you get, you would need to inform the authorities: Even if below rent-a-room levels.

G_M

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

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

See:

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 (HMRC guide for tax-free income from lodgers)

paulinetc

Thank you all so much! You've been a great help. I'll get straight onto this tomorrow. I genuinely had no idea about this and can't believe I went so long without declaring it!! Hopefully I won't get in trouble!!

kinger101

In addition to the other good advice you've had, you should probably check whether you need to notify your insurance company.