Renting out a room - paying tax

tabalf

Hi, I have a couple of queries about paying tax on rental income. Most of the advice on the internet is a little unclear and so I'd like to ask people's advice on my situation:

I rent a furnished room in a house that I own and live in. I understand I have the option of paying tax on the income or using the Rent-a-Room scheme. If I choose the former, I have to pay my ordinary rate of income tax on (rental income) minus (allowable expenses) minus (wear and tear allowance). Allowable expenses are:
- mortgage interest
- utility bills (gas, electricity, phone, broadband, water, TV licence)
- council tax
- service charge
- repairs (including replacement oven for one that broke down)

My questions are:
1. Is the above correct? If so, how much of that can I claim as allowable expense? 0%, 100%, 50%? (There are two of us in the house - me and my lodger)
2. According to HMRC, the wear and tear allowance is 10% of income "less any costs you pay that a tenant would usually pay". Are these costs just the same as the allowable expenses above?
3. My freeholder had works carried out last year for which I will be charged at some point this year. Can I move forward or push back expenses into different tax years?

Thanks

CIS

Have you checked your council tax charge is correct now you're renting a room out?

I've done work for some recently where it had been overlooked before I looked in to it.

Craig

Pixie5740

I'm assuming the rental income you receive is greater than the rent a room scheme allowance.

There aren't really any hard and fast rules about how much of the expenses you can claim relief on other than claiming 100% of expenses wouldn't be reasonable because you've used gas, electricity, water, etc so 100% of the utilities weren't business expenses. You could base it on a 50/50 split or calculate it as a proportion based on square footage, however you see fit as long as you'd be comfortable explaining it to HMRC if they asked.

Maintenance and repairs to the property are ok but not improvements. Did the freeholder carry out the work prior to you having a lodger?


https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/dgh

tabalf

Thanks for the replies.

In answer to CIS: yes, I notified the council as soon as my lodger moved in and have been paying normal council tax since.

In answer to Pixie5740: yes, the rental income for last year was over the rent-a-room allowance (though probably not this year). The freeholder work (which was decorative and electrical maintenance) was carried out while I had a tenant living with me. Some of the electrical work has been carried out this year, but the rest was done last year.

booksurr

is the total of your share (not the total total) of all bills > £7,500? If not then it is cheaper (and simpler) to claim the rent a room allowance

as you have identified, the "guidance" from HMRC is that whatever apportionment method you use it must be "reasonable". What that means in reality is
- apportion by floor space
or
- apportion by number of rooms

the key principle is that the lodgers bedroom counts as the let space and everything else is common (ie your cost). So in a 2 bed flat with kitchen, lounge and bathroom that counts as 1/4 is let. However, other factors can be brought into the equation depending on how your lodger and you interact on a daily basis - see this post from Jimmo, who is a retired HMRC tax inspector!

https://forums.moneysavingexpert.com/discussion/3747727

I assume your issue is that the repair bills are large and will cause this year to be atypical?

Note that rental expenses must follow normal accounting principles so they are incurred in the year in which the work is done, not at the date it is paid. So no, you certainly cannot push forward or backwards the tax year to which the repairs bills relate

tabalf

Thanks booksurr, that link is helpful and it backs up what I thought.

As for the £7500 threshold, my question relates to filling in my tax return for 2015-2016, when the limit was £4250. Whether or not my expenses breaches that threshold largely depends on whether or not I can claim for the maintenance works performed last year.

CIS

In answer to CIS: yes, I notified the council as soon as my lodger moved in and have been paying normal council tax since.

Presumably it's their 'sole or main residence' and not just a lodging whilst they work away from home ?.

Craig

tabalf

Hi CIS, yes it's their main residence.

tabalf

Is anyone able to give a response to the second two questions?
Thanks

booksurr

tabalf wrote: »

Is anyone able to give a response to the second two questions?

as I said, if the "maintenance" works are genuinely repairs not capital expenditure, then yes you can claim for them in the year in which the work was done using a reasonable split between your personal element and the business element of them

tabalf

Thanks booksurr, sorry I missed that last bit of your comment originally.
As for the second of my questions, do you agree that in the wear-and-tear allowance, "less any costs you pay that a tenant would usually pay" refers to the same allowable expenses as are claimed normally?