How to offset mortgage cost against income from renting a room to a lodger?

PaulMike

Just to be clear, this post seeks tax advice on renting a room to a lodger, not renting the whole property out.

The Rent a Room scheme offers two options:

1. Take £4,250 tax-free, and anything above that is taxed at your high marginal tax rate. This can be rather punitive for the tax year 2015-16.

2. Offset allowable expenses that include "interest on property loans", but only in part. What part? Would it be based on the footage of the rented room, or would it simply be 1/3 for one room rented out in a 3-bed house?

For the text of the document in question please google for the following phrase, including double quotes. Use the BBC link: "then you may only be able to claim part of it"

As a new user I'm not allowed to post URLs here.

Pixie5740

I don't think there are any hard and fast rules. You just need to be confident you can justify your decision to HMRC if they ask. I don't think 1/3 of the mortgage interest in a 3-bedroom house would be reasonable because it doesn't take into account all the rooms in the house just the bedrooms.

Guest101

PaulMike wrote: »

Just to be clear, this post seeks tax advice on renting a room to a lodger, not renting the whole property out.

The Rent a Room scheme offers two options:

1. Take £4,250 tax-free, and anything above that is taxed at your high marginal tax rate. This can be rather punitive for the tax year 2015-16.

2. Offset allowable expenses that include "interest on property loans", but only in part. What part? Would it be based on the footage of the rented room, or would it simply be 1/3 for one room rented out in a 3-bed house?

For the text of the document in question please google for the following phrase, including double quotes. Use the BBC link: "then you may only be able to claim part of it"

As a new user I'm not allowed to post URLs here.

I thought RAR went up to £7000?

chucknorris

Guest101 wrote: »

I thought RAR went up to £7000?

£7,500, but looks like he is doing his 2015/16 tax return, the deadline for submission is end of Jan.

PaulMike

chucknorris wrote: »

£7,500, but he is obviously doing his 2015/16 tax return, the deadline for submission is end of Jan.

Correct. £7,500 makes life a lot easier. The £4,250 level has not changed for about a decade.

PaulMike

Pixie5740 wrote: »

I don't think there are any hard and fast rules. You just need to be confident you can justify your decision to HMRC if they ask. I don't think 1/3 of the mortgage interest in a 3-bedroom house would be reasonable because it doesn't take into account all the rooms in the house just the bedrooms.

1/3 sounds fair to me as the rest of the space is shared, no? What apportioning method would you propose?

AlexMac

Thanks for that useful link PaulMike; although it answers your Q better than most of us posters can do; in fact, if you go down the "allowable expenses" route, I reckon you could really stack up the costs to offset income

...by the time you factor in not only a % of mortgage interest, but also the lodger's share of utilities, council tax, maintenance, gardening, laundry, washing up liquid, toilet paper, the odd bottle of Chateuneuf du Pape they siphon from the fridge, transport for the lifts you give them to the pub or to the betting shop, broadband, TV licence and costs of the ink cartridge in the printer you use to draw up their agreement!

In which case, whether you charge them one third, based on numbers of bedrooms, or a greater or lesser % based on how many people live there (in which case, do kids count as half...?) you could probably declare a substantial tax loss...


Why didn't I think of that?

Pixie5740

PaulMike wrote: »

1/3 sounds fair to me as the rest of the space is shared, no?

Maybe, maybe not. The lodger's bedroom is let space all the other space is in the property is common so it depends how you and the lodger use it.

PaulMike wrote: »

What apportioning method would you propose?

It's not the first time this has come up on the forum. You might find these previous threads of use.

Renting out a room paying tax

Not another tax rental thread

PaulMike

Hint: a pretty decent Chateuneuf du Pape spotted at Lidl. £9.99

AlexMac

PaulMike wrote: »

Hint: a pretty decent Chateuneuf du Pape spotted at Lidl. £9.99

Yeah but the taxman don't know it ain't "2012 Cuv!e de la Reine des Bois Domaine de la Mordor!e" at £93 a pop...

Now stop messing about and get that self-assessment form in; you've only got 13 days. I got mine in last month and got a 600 quid tax rebate in the Dec pension as their coding forecast based on 2014-15 had been toppy!