Rent a room scheme/Claiming expenses - and first time tax return queries

AnneHello

Hello

I am hoping someone can help out or point me in the right direction - first time filing a tax return!

I am employed (PAYE) but am now in receipt of rental income from lodgers (living in my main house) as well as rental income from a buy to let property.

I have been trying to find the answers to the below but unfortunately no luck! If anyone can help this would be massively appreciated.

1. Rent a room scheme/ Property income with expenses
I am aware under the rent a room scheme you can’t claim expenses. I am trying to work out whether it’s more beneficial for the income to be classed as property income with the expenses taken into account. I pay all utilities, internet etc. I understand a portion of these expenses can be taken into account but can’t find any guidance on how much I can deduct i.e do I split it between how many people are living in the house to work out what a reasonable amount of this would be to claim?

2. As my tax is usually paid through PAYE are there any tax reliefs available that I can claim now that I’m doing a tax return - can I claim for travel costs to work/work clothes for example?

3. Property income
I saw it mentioned on a thread about potentially claiming for other mortgage costs - when I changed the property to buy to let can I use these mortgage arrangements fees as an expense?

Massive thanks in advance to anyone who can help with any of the above

Thanks

Dazed_and_confused

I am aware under the rent a room scheme you can’t claim expenses

Think you've misunderstood rent a room options.

How much rent are you receiving which would be eligible for the rent a room scheme?

are there any tax reliefs available that I can claim now that I’m doing a tax return

Why do you think having to file a return changes the validity of any expenses?

AnneHello

Hi

Thanks so much for your quick response.

The total rent received by lodgers by all owners of the property is over the £7,500 rent a room limit . My understanding was I either
(A) opt in to rent a room scheme and pay tax only on the rent received over the threshold (and not claiming expenses)

(B) opt out of rent a room scheme and pay tax on all rent received but take into account expenses

Is this incorrect?

———

I’ve never done a tax return so have never claimed expenses before- I wasn’t sure whether there are any expenses available to someone who is on PAYE - which potentially I could have claimed in the past but haven’t

Thanks again for your help

Dazed_and_confused

Yes that is broadly correct. Is the rental income and more importantly the expenses large enough to consider option B?

Normal commuting isn't tax deductable and unless you have specialist protective clothing then no clothes you wear to work aren't tax deductable. Do you have clothes with a company logo on?

Sibbers123

1) treat the rental income from your BTL and rent a room separately. (rent a room income less £7,500 - i doubt the rent a room expenses will exceed £7,500 unless you're living in a very large house with a massive mortgage) - the BTL income is taxed as normal, income less expenses (50% of mortgage interest) etc

2) commuting is not a qualifying journey for tax relief. Work clothing only if it is wholly, exclusively and necessarily incurred for work (which essentially rules out 99% of clothing except PPE etc)

3) the mortgage arrangement fees are capital in nature and are only deductible when you sell the property reducing capital gains tax (I have assumed you used to live in the property and are now living elsewhere - if the property was a BTL before and after the remortgage, then you will get a different answer)

Sounds like you could benefit from an accountant and some tax advice.

AnneHello

Thanks both - really helpful - and really appreciate you taking the time to reply :-)

Retired_Mortgage_Adviser

When your lodger/Airbnb income exceeds 7,500, you have to declare it through self assessment and you have two options -

1. Pay tax on actual profit (rental income minus expenses)
OR
2. Pay tax on the GROSS income over 7,500.

Method 1 is automatic through your self assessment, method 2 requires you to opt-in/elect by talking to HMRC.

As for apportioning common expenses, you would normally do it on a reasonable basis such as sqft of the room as a % of total floor area of the house.

00ec25

1, there is no proscribed method. The approach you adopt must be "reasonable" and consistent. If you get it wrong because you are "excessive", and you won't know until you are investigated, then it will be wrong and you will be penalised.

- no of occupants is a method
- no of let rooms is a method (for historic reasons bathrooms do not count towards the denominator total no of rooms)

both need to be very realistically flexed to reflect your normal usage and also what cost you would pay yourself whether there was or was not a lodger present, ie much simpler to work on additional costs basis.

2 already answered. in simple terms, no

3. You need to spend a lot more time reading if you are trying to avoid paying a professional to do your tax for you
start here: https://www.gov.uk/hmrc-internal-manuals/property-income-manual

mortgage arrangement fees can be revenue costs in the circumstances already outlined byu others above. If they relate wholly and exclusively to a mortgage taken out for letting purposes - be that a loan to purchase the let property, or capital withdrawn ("equity released") from the lettings business for use in purchasing your own place to live in
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2105