What should I take care of before renting rooms in my house?

Pixie5740

Halifax aren't going to advise you on tax matters just the terms of your mortgage.

booksurr

randd wrote: »

Thanks for explaining in detail. I've clear understanding now that £7500 allowance is not per room or per lodger

let us be very clear about this

If your are IN the rent a room scheme the £7,500 threshold is the TOTAL OF ALL INCOME you receive from ALL the lodgers you have in a year.

Take this example:
Bedroom one is occupied by a single lodger who stays 12 months and pays £300 month rent = 3,600 total over 12 months

bedroom 2 is occupied by a single person for 3 months who pays £300 month rent = £900

bedroom 2 is then empty for two months while you advertise for a new person.

You then accept a couple into bedroom 2 and charge them £400 month rent for the remaining 7 months of the year = 2,800

your total income for the tax year is £7,300. That is less than the rent a room threshold so you get to keep all that money tax free

randd wrote: »

However, based on your suggestion above, say suppose if my total rental income in year is £8000 and I've paid let's day £1000 for all the shared bills in that year. Then, can I deduct both the amounts to show my income as £7000, and therefore, it is under tax-free allowance? Sorry, but this isn't clear to me.

If you ask you lodgers to pay £1,000 towards shared bills that means your total income for the year will be 8,300. That is more than the allowance so you would have to pay tax on the excess over 7,500. Therefore you will need to:
a) tell HMRC that you are in receipt of income in excess of the rent a room allowance; and
b) pay tax on the excess: 8,300 - 7500 = 800 x 20% tax = £160 tax to pay

Do you understand it now? If you ask a lodger to pay towards any bills over and above what they pay you as "rent" then that extra money must be included in your total "income". You CANNOT say £1,000 received for bills was spend on the bills so the net income is zero. That is not allowed if you want to use the rent a room scheme

Also be very careful when reading the .gov website because it is aimed at people of low intelligence so it simplifies things down to the level where it is easy to misunderstand what the rules actually mean given it appears English is not your first language

booksurr

randd wrote: »

Thanks for pointing this out, I'll read more about this. As such the bank employee said max. can be 2, I thought it should be just fine to let two rooms.

the Halifax terms and conditions of the loan they are giving you may well have 2 as the maximum they will allow you

But what the Halifax says has nothing at all to do with tax rules ...

As for Capital gains Tax as per the link already given if you have more than one lodger in your home at a time then you become liable for capital gains tax. However you also get UP TO the first £40,000 of any gain tax free so it is very unlikely that you would end up having to pay CGT even though you are liable for it.

Green_hopeful

Spareroom.co.uk is a good website to get information and also to advertise for tenants. I have had lots of lodgers. Some are easier than others to get on with. In general can be a fantastic way to help pay for your home and sometimes make friends.

randd

Green_hopeful wrote: »

Spareroom.co.uk is a good website to get information and also to advertise for tenants. I have had lots of lodgers. Some are easier than others to get on with. In general can be a fantastic way to help pay for your home and sometimes make friends.

I use the same website for hunt. Thanks for sharing your experience.

randd

Thanks for sharing in detail with examples. I actually don't know all this as I've been renting till now. I was quite worried to see so many things to consider to offer a place to rent. I really appreciate your support.

booksurr wrote: »

However you also get UP TO the first £40,000 of any gain tax free so it is very unlikely that you would end up having to pay CGT even though you are liable for it.

Can you please provide any reference for above?

randd

Green_hopeful wrote: »

Spareroom.co.uk is a good website to get information and also to advertise for tenants. I have had lots of lodgers. Some are easier than others to get on with. In general can be a fantastic way to help pay for your home and sometimes make friends.

Do you provide any kind of rent agreement to your lodgers? If yes, can you please share how to get one?

booksurr

randd wrote: »

Do you provide any kind of rent agreement to your lodgers? If yes, can you please share how to get one?

at its simplest you need a bit of paper with your name, the lodger name , the amount of rent and the frequency it is to be paid

if you want something a bit more "detailed" then use google to find one. There are ones which you have to pay for, they are no better than the free ones,. The key thing is to keep the agreement as simple as possible, this is an example....
http://www.crisis.org.uk/data/files/Private_Rented_Sector/Sharing_Solutions/Crisis_Template_Lodger_Agreement.pdf


I assume you are not going to live in Scotland or Northern Ireland as they have their own rules.

moneyistooshorttomention

Guest101 wrote: »

Many smoke outside these days

That would be a pleasant change if so.

But I was shocked at how they all quite openly smoked in my home and kept doing so even after being reminded they werent allowed to. Only one of the smokers respected my "no smoking" ban.

randd

moneyistooshorttomention wrote: »

That would be a pleasant change if so.

But I was shocked at how they all quite openly smoked in my home and kept doing so even after being reminded they werent allowed to. Only one of the smokers respected my "no smoking" ban.

Yes, I can also relate to this issue. Few of my housemates use to do this when I was renting in Portsmouth.