Allowable expenses when renting rooms to lodgers

Olinda99

you asked what scenario cgt would be payable

supposing you own the house for 10 years and during that time you had lodgers as well. Also suppose you paid 200,000 for the house and during a 10 years it rose to 400,000

the 'profit' or gain is 200,000 and normally if it was your principal private residence you would have no cgt to pay

however if say 25% of your house was for lodgers and 75% for you than 50,000 of the profit would be liable to cgt which currently is either 18% or 28%

1404

Olinda99 said:

you asked what scenario cgt would be payable

supposing you own the house for 10 years and during that time you had lodgers as well. Also suppose you paid 200,000 for the house and during a 10 years it rose to 400,000

the 'profit' or gain is 200,000 and normally if it was your principal private residence you would have no cgt to pay

however if say 25% of your house was for lodgers and 75% for you than 50,000 of the profit would be liable to cgt which currently is either 18% or 28%

OK, well let's use the example you've just given.  And I'm sure someone will correct me if my late-night figures are incorrect:

Let's say the owner has lived alone for 9 months after buying the house. They also have 9 months PPR tax relief (ie, it's classed as living alone) at the end of the ownership. (9 months + 9 months = 1.5 years of PPR).

1.5 years PPR / 10 years of ownership = 15% PPR

15% of £200,000 profit = £30,000, which is exempt from CGT because it's classed as living alone at the property.

The remaining £170,000 is subject to CGT. But only 25% of it. Because that is the portion of the house which was let.

25% of £170,000 = £42,500 which is taxable.

However, additional tax relief (Lettings Relief) is available. This is the lowest of these three figures: £40,000 (default) or £127,500 (the parts of the home not let out or shared) or £42,500 (the parts let out).

£40,000 is the lowest of these figures and is therefore granted tax relief.  CGT is therefore payable on the remaining £2,500.

The basic rate of 18% tax on £2,500 would be £450 CGT to pay on the £200,000 profit.  At the higher 28% rate of tax this would be £700 CGT to pay on the £200,000 profit. 

RAS

What is your "additional tax relief"?

There used to be a £12k annual allowance, currently £6k, going to zero soon. Not aware of any other allowance.

1404

RAS said:

What is your "additional tax relief"?

There used to be a £12k annual allowance, currently £6k, going to zero soon. Not aware of any other allowance.

Lettings Relief.