Allowable expenses when renting rooms to lodgers

1404

Hi all,

This question is about live-in landlords with lodgers.

The Rent A Room Scheme allows up to £7,500 tax free.  But what if the income is £10,000?  And what if the income is £15,000?

Is the Rent A Room Scheme still worth doing?  And if not, then what are the allowable expenses for the live-in landlord should they wish to pay tax in the normal way on rental profits?

For example, is the entire elec/gas/broadband/water/council tax all fully deductible from the rental income?  And the entire interest part of the mortgage?

Or is all of that too messy, and the landlord is better off simply paying tax on anything above £7,500?

Many thanks.

propertyrental

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

https://www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2022

I assume you also use/benefit from the elec/gas/broadband/water/council tax yes? So no, you can't claim these in full

Grumpy_chap

1404 said:

Hi all,

This question is about live-in landlords with lodgers.

The Rent A Room Scheme allows up to £7,500 tax free.  But what if the income is £10,000?  And what if the income is £15,000?

Is the Rent A Room Scheme still worth doing?  And if not, then what are the allowable expenses for the live-in landlord should they wish to pay tax in the normal way on rental profits?

For example, is the entire elec/gas/broadband/water/council tax all fully deductible from the rental income?  And the entire interest part of the mortgage?

Or is all of that too messy, and the landlord is better off simply paying tax on anything above £7,500?

Many thanks.

If an individual with lodgers (LL living in the same building) used actual costs rather than the Rent-A-Room Scheme, then I would expect that it is only "extra-over" costs that can be claimed as expenses.

I can't understand why there would be anything where the "entire" costs could be deducted from income. 
Take the example of Council Tax. 
If the LL lives with a.n.other in any case (partner / family member / friend) then there is no increase in CT by virtue of having a lodger also live at the property, so I could not see that anything would be allowable expense.
If the LL lives alone, so qualifies for the single-person discount, then the lodger moves in and that discount is forfeited, I could see that the difference might be an allowable expense.

1404

propertyrental said:

I assume you also use/benefit from the elec/gas/broadband/water/council tax yes? So no, you can't claim these in full

That is interesting.  Thank.  What those sites don't answer though is how much (if any) of the interest on the mortgage is an allowable expense.

It's also interesting to note on one of those sites that it says that "the accommodation cannot be used as an office".  This may be an issue for lots of people in this age of hybrid and home working.  Many people work at least some days at home.  So this is a factor now for lodgers?

1404

Grumpy_chap said:

1404 said:

Hi all,

This question is about live-in landlords with lodgers.

The Rent A Room Scheme allows up to £7,500 tax free.  But what if the income is £10,000?  And what if the income is £15,000?

Is the Rent A Room Scheme still worth doing?  And if not, then what are the allowable expenses for the live-in landlord should they wish to pay tax in the normal way on rental profits?

For example, is the entire elec/gas/broadband/water/council tax all fully deductible from the rental income?  And the entire interest part of the mortgage?

Or is all of that too messy, and the landlord is better off simply paying tax on anything above £7,500?

Many thanks.

If an individual with lodgers (LL living in the same building) used actual costs rather than the Rent-A-Room Scheme, then I would expect that it is only "extra-over" costs that can be claimed as expenses.

I can't understand why there would be anything where the "entire" costs could be deducted from income. 
Take the example of Council Tax. 
If the LL lives with a.n.other in any case (partner / family member / friend) then there is no increase in CT by virtue of having a lodger also live at the property, so I could not see that anything would be allowable expense.
If the LL lives alone, so qualifies for the single-person discount, then the lodger moves in and that discount is forfeited, I could see that the difference might be an allowable expense.

I agree with the gist of what you're saying.  But the interest part of mortgages are one example of something which gets mentioned which is not an "extra over".  

Grumpy_chap

1404 said:

I agree with the gist of what you're saying.  But the interest part of mortgages are one example of something which gets mentioned which is not an "extra over".  

Where did you see the information about mortgage interest in connection with taking in a lodger?
I did not see that in the links provided upthread.
Mortgage interest is one item I would have expected to be disallowed in full as the "extra-over" is NIL.
Having a lodger is not the same as a BTL - even then, tax relief against mortgage interest is restricted to basic rate

katejo

To charge £15 K a year just to rent a room?! I used to let one but kept below the rent a room allowance most of the time because it was so much easier to work out. Briefly paid tax on the excess before the limit went up to £7500. 

1404

katejo said:

To charge £15 K a year just to rent a room?! I used to let one but kept below the rent a room allowance most of the time because it was so much easier to work out. Briefly paid tax on the excess before the limit went up to £7500. 

It was an example figure, but £15,000 would be two rooms at £625 each.  Quite normal rent thesedays and two lodgers are allowed.

1404

Grumpy_chap said:

1404 said:

I agree with the gist of what you're saying.  But the interest part of mortgages are one example of something which gets mentioned which is not an "extra over".  

Where did you see the information about mortgage interest in connection with taking in a lodger?
I did not see that in the links provided upthread.
Mortgage interest is one item I would have expected to be disallowed in full as the "extra-over" is NIL.
Having a lodger is not the same as a BTL - even then, tax relief against mortgage interest is restricted to basic rate

I must have misread that as I can't find it now.  Thanks for your input.

valueman1

As far as I’m aware there are no allowable expenses, so you are taxed on anything above £7,500.

_Penny_Dreadful

valueman1 said:

As far as I’m aware there are no allowable expenses, so you are taxed on anything above £7,500.

That’s only if you opt to use the Rent a Room scheme. When a resident landlord has allowable expenses of more than £7,500 a year it would be advantageous not to use RaR.