Renting two rooms to lodgers in home and income tax of non-working disabled spouse

ATailOfTwoKitties

Hi everyone.

In the past few months, my wife has developed a chronic condition that has left her bed-bound and disabled. She was previously employed on a full-time basis and her company provided her with a period of sick pay, but this is coming to an end. I have a regular full-time job with a salary.

We are in the fortunate position of owing our own (mortgaged) home. This is where we live and it is our only property. We have recently taken in a lodger, the rental income from which will be exempt from income tax under the rent-a-room scheme (up to £7,500 per annum, anything above which is to be declared to HMRC). We have sought approval from the mortgage lender and altered our home insurance to accommodate lodger cover, so everything is above board.

My goal is to provide an income for my wife as she (hopefully) recovers from her condition over time.

In order to do this, we are considering taking in a second lodger. Our understanding is that taking in a second lodger will mean that the income tax relief provided by the rent-a-room scheme would no longer be applicable. With regard to Capital Gains Tax (CGT) and Private Residence Relief (PRR), we are also aware of the potential tax implications of taking in a second lodger if we look to sell our home in future.

My queries relate to income tax from rental income in a given tax year:

• If, for argument's sake, my wife will not earn any income from conventional work in the 2020/21 tax year, is it acceptable to let the rooms to the lodgers in her name so as to minimise her income tax liability and maximise her income? She would be the recipient of the income.
• Alternatively, with regard to rental income, are both the owners of the home considered to be the landlords? Accordingly, is the income of a married couple perhaps calculated jointly, as a household?

I have searched online for guidance on this matter, and I haven't been able to locate any unfortunately.

Thank you very much for your advice - it is much appreciated.

[Deleted User]

ATailOfTwoKitties wrote: »

Hi everyone.

In the past few months, my wife has developed a chronic condition that has left her bed-bound and disabled. She was previously employed on a full-time basis and her company provided her with a period of sick pay, but this is coming to an end. I have a regular full-time job with a salary.

We are in the fortunate position of owing our own (mortgaged) home. This is where we live and it is our only property. We have recently taken in a lodger, the rental income from which will be exempt from income tax under the rent-a-room scheme (up to £7,500 per annum, anything above which is to be declared to HMRC). We have sought approval from the mortgage lender and altered our home insurance to accommodate lodger cover, so everything is above board.

My goal is to provide an income for my wife as she (hopefully) recovers from her condition over time.

In order to do this, we are considering taking in a second lodger. Our understanding is that taking in a second lodger will mean that the income tax relief provided by the rent-a-room scheme would no longer be applicable. With regard to Capital Gains Tax (CGT) and Private Residence Relief (PRR), we are also aware of the potential tax implications of taking in a second lodger if we look to sell our home in future.

My queries relate to income tax from rental income in a given tax year:

• If, for argument's sake, my wife will not earn any income from conventional work in the 2020/21 tax year, is it acceptable to let the rooms to the lodgers in her name so as to minimise her income tax liability and maximise her income? She would be the recipient of the income.
• Alternatively, with regard to rental income, are both the owners of the home considered to be the landlords? Accordingly, is the income of a married couple perhaps calculated jointly, as a household?

I have searched online for guidance on this matter, and I haven't been able to locate any unfortunately.

Thank you very much for your advice - it is much appreciated.

I think I am correct in saying that as you are married and the house is jointly owned then the lodger income has to be split 50/50 as is the rent a room allowance.

csgohan4

YOU could put the house as tenants in common and split the share of the house so she could have the lions share.

Could do this without a solicitor if you know what your doing and doing the right forms, but I would get a professional tbh

paddyz

Could your wife not claim benefits? Might be good to check out support groups for your wife’s illness many charities have advice lines that could help with working ideas or benefits advice if she needs to give up her job

I rent rooms out and it’s not always that easy, drunk lodgers coming home in the middle of the night etc. Going from one to 2 can be quite different too. But needs must and I’m sorry to hear about your situation.

G_M

https://www.gov.uk/joint-property-ownership

00ec25

ATailOfTwoKitties wrote: »

If, for argument's sake, my wife will not earn any income from conventional work in the 2020/21 tax year, is it acceptable to let the rooms to the lodgers in her name so as to minimise her income tax liability and maximise her income? She would be the recipient of the income.

• Alternatively, with regard to rental income, are both the owners of the home considered to be the landlords? Accordingly, is the income of a married couple perhaps calculated jointly, as a household?

1. if you own as JOINT TENANTS then the income must be split 50/50. There is no alternative


2. You have misunderstood how RaR works
a) it is split between owners in equal shares. That split must be 50/50 with 2 owners. There is no other option so you each get £3,750

b) where each person's share of the income is >£3,750 the person can opt to either i) pay tax on the excess over that amount or ii) work out their profits in the normal manner, ie income - costs = profits. As that can be very fiddly as requires costs to be split between the business element and the personal element, must easier to stick with option 1 and claim 3,750 tax free

3. As mentioned by others, you could change ownership of the property to TENANTS IN COMMON and then do a declaration of trust and submit a Form 17 to HMRC registering an unequal share of the income and therefore she could take whatever share you register. Note carefully, you are married and it is your main home, so for CGT purposes never do 0/100, always retain at least 1% so that person retains their claim for PRR in the CGt calculation

ATailOfTwoKitties

Hi everyone,

Thank you so much for your suggestions and ideas - very much appreciated. There's plenty for us to explore in the search for the best course of action.

Kind regards and seasons greetings.

martindow

Sorry to hear about your situation.


It may be worth posting on the benefits board. Presumably you will be eligible for some benefits when the sick pay ends. Getting extra income from another lodger may affect these and you don't want the extra hassle if there is only a marginal financial gain.