Capital Gains Tax if Letting Rooms

gimmetheloot

Apologies if this has been asked before but I'm struggling to find a definitive answer here or elsewhere.

Myself and a friend are considering buying a four bed property and would like to let the two spare rooms. As I understand it this means we would be liable for capital gains tax on sale. I also understand that we'd qualify for Private Residence Relief though since it would be our main residence.

The question is would this relief be based on the number of people in the property ie 50:50 or would the split be based on the number of rooms?

The house has four bedrooms, two reception rooms and one living room. Total seven rooms.

So would the split be 5/7 : 2/7 instead?

Thanks in advance

Keep_pedalling

This will be your primary residence, renting out rooms to lodgers does not leave you with a CG liability when you sell.

Pixie5740

Keep_pedalling wrote: »

This will be your primary residence, renting out rooms to lodgers does not leave you with a CG liability when you sell.

That's not true if you have more than one lodger at the same time. You can still end up with a CGT liability even if it's also your primary residence.



https://www.gov.uk/rent-room-in-your-home/rent-bills-and-tax

gimmetheloot

Keep_pedalling wrote: »

This will be your primary residence, renting out rooms to lodgers does not leave you with a CG liability when you sell.

Unfortunately I think it does? Seems like one lodger is fine but two makes you liable:
https://www.gov.uk/tax-sell-home/let-out-part-of-home

The last paragraph is what is unclear:
If you only let out part of your home
You’ll need to work out what proportion of your home you lived in. You only get Private Residence Relief on this proportion of your gain.

You may also be entitled to Lettings Relief.

The 'proportion of the home we live in' would surely be 5/7 ?

Pixie5740

gimmetheloot wrote: »

Apologies if this has been asked before but I'm struggling to find a definitive answer here or elsewhere.

Myself and a friend are considering buying a four bed property and would like to let the two spare rooms. As I understand it this means we would be liable for capital gains tax on sale. I also understand that we'd qualify for Private Residence Relief though since it would be our main residence.

The question is would this relief be based on the number of people in the property ie 50:50 or would the split be based on the number of rooms?

The house has four bedrooms, two reception rooms and one living room. Total seven rooms.

So would the split be 5/7 : 2/7 instead?

Thanks in advance

Once you switch from having two or more lodgers at any one time, HMRC can argue that the activity switches from having a lodger to running a lodging house. I don't think there are any hard and fast rules other than you have to be comfortable explaining your reasoning if HMRC come knocking. It's only the rooms used exclusively for trade that are excluded from Private Residence Relief and Lettings Relief so that would really be the lodgers' bedrooms and maybe a bathroom if it's only shared by the lodgers. You could divvy it up based on the number of rooms or you could use area or some other method.

00ec25

Keep_pedalling wrote: »

This will be your primary residence, renting out rooms to lodgers does not leave you with a CG liability when you sell.

wrong - letting to 2 or more is what matters....

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64702

as Pixie says, there is no set method, number of rooms used by the lodgers would be the normal "reasonable" basis, so 2/7 in your case.

the principle being that the respective bedrooms have ceased to be occupied by you are part of your own dwelling. The common areas, bathroom , kitchen, lounge etc continue to be used by you and the lodger so are not included in the 2/7 fraction.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64311

Keep_pedalling

Pixie5740 wrote: »

That's not true if you have more than one lodger at the same time. You can still end up with a CGT liability even if it's also your primary residence.



https://www.gov.uk/rent-room-in-your-home/rent-bills-and-tax

Sorry, I stand corrected.

gimmetheloot

Thanks all, very helpful