Can lodger work from home?

1404

Below is what I use on my Lodger Agreements. Do I need to change this to specifically state that Mon-Fri weekday homeworking is not allowed (in order to protect my Rent A Room scheme tax arrangement)?

In bold (part F) is the bit I currently use which relates to home working.

Notice period: one month.

A The Landlord gives the Lodger the personal right to live in the Accommodation and to use the Shared Rooms with the Landlord.

B The Lodger agrees to observe and perform the obligations set out in this Agreement.

C This Agreement can be ended at any time:

C1 by the Landlord giving the Lodger notice to quit the Accommodation at the end of the notice period;

C2 by the Lodger giving the Landlord notice of his/her intention to vacate the Accommodation at the end of the notice period.

D          The Landlord’s address for service of notices (including notices of proceedings) is the address given for the Landlord at the start of this Agreement.

E The Landlord agrees to provide the following services: utility bills included in the rent; hand soap for all sinks; kitchen & bathroom cleaning products provided; clean hand towels provided in the bathrooms & kitchen; emptying of all bins & waste disposal; regularly hoovering the Lodger’s room along with the rest of the house.

F          This is a residential house only. No business can be conducted in it nor any business registered to the house.

G          Lodgers must be non-smokers, and smoking is banned anywhere in the house and outside areas.

H          The Lodger will observe the complete ban on candles, lighters, naked flames and any other fire hazards.

I            Ironing must be done in the kitchen and on the ironing board. Never in bedrooms or on the beds.

J No guests of Lodgers are allowed into the house or on the property.

K          The Landlord has a key to the Lodger's room and can enter without permission (although privacy will be respected and notice given when necessary).

Bookworm105

user1977 said:

Bookworm105 said:

subjecttocontract said:

It seems that HMRC haven't moved with the times. WFH is the new normal for a large proportion of working age people AND surprise, surprise they WFH during the daytime. I guess HMRC might eventually get around to understanding how the new world order operates ! Although I wouldnt expect to much to soon.

indeed, they are still living in the early 1990s, but then legislation has not kept up so not really their fault as they don't make the legislation, they merely apply it 
PIM4002 - Rent-a-room: letting as office accommodation - HMRC internal manual - GOV.UK

That guidance doesn’t seem relevant here as it’s talking about rooms which are actually offices, not merely bedrooms having an ancillary “working from home” purpose.

I linked to the legislation above, and unless there’s some other legislation I’ve missed, it doesn’t seem to exclude WFH.

the relevance is that is the only publicly available info we have on HMRC's thought processes regarding lodger "activity" under rent a room.
It demonstrates the point that they have not kept up. It also demonstrates that even back then they openly admit a lot is their own interpretation, not the black and white of legislation. 
as ever with tax, it is elf assessment, you can claim what you like but ultimately you must be willing to go before a First Tier Tribunal if your interpretation of legislation is not the same as HMRC's, or as you say, there nothing explicit about a specific matter.

horsewithnoname

Bookworm105 said:

user1977 said:

Bookworm105 said:

subjecttocontract said:

It seems that HMRC haven't moved with the times. WFH is the new normal for a large proportion of working age people AND surprise, surprise they WFH during the daytime. I guess HMRC might eventually get around to understanding how the new world order operates ! Although I wouldnt expect to much to soon.

indeed, they are still living in the early 1990s, but then legislation has not kept up so not really their fault as they don't make the legislation, they merely apply it 
PIM4002 - Rent-a-room: letting as office accommodation - HMRC internal manual - GOV.UK

That guidance doesn’t seem relevant here as it’s talking about rooms which are actually offices, not merely bedrooms having an ancillary “working from home” purpose.

I linked to the legislation above, and unless there’s some other legislation I’ve missed, it doesn’t seem to exclude WFH.

the relevance is that is the only publicly available info we have on HMRC's thought processes regarding lodger "activity" under rent a room.
It demonstrates the point that they have not kept up. It also demonstrates that even back then they openly admit a lot is their own interpretation, not the black and white of legislation. 
as ever with tax, it is elf assessment, you can claim what you like but ultimately you must be willing to go before a First Tier Tribunal if your interpretation of legislation is not the same as HMRC's, or as you say, there nothing explicit about a specific matter.

All legislation is subject to interpretation by the courts, not much legislation is black and white, hence the number of tax dodging schemes where the greedy try to “interpret” the law in ways it was never intended. 

1404

Bookworm105 said:

subjecttocontract said:

It seems that HMRC haven't moved with the times. WFH is the new normal for a large proportion of working age people AND surprise, surprise they WFH during the daytime. I guess HMRC might eventually get around to understanding how the new world order operates ! Although I wouldnt expect to much to soon.

indeed, they are still living in the early 1990s, but then legislation has not kept up so not really their fault as they don't make the legislation, they merely apply it 
PIM4002 - Rent-a-room: letting as office accommodation - HMRC internal manual - GOV.UK

Thank you for this link (which I have just read).

Are you able to point out where it says that a genuine lodger cannot work from home? It seems to say that providing a desk for "study or work" is permissable:

"The foregoing does not apply to genuine lodgers such as students who are provided with study facilities in their lodgings. In such cases, we would not want to deny relief where a lodger living in the home is provided with a desk, or the use of a room with a desk, which he or she uses for work or study”.

Or maybe this only applies to students?

pieroabcd

1404 said:

FrnC said:

user1977 said:

HMRC only care about how much rent you're getting.

I doubt anybody has a problem with working from home these days (in the sense of sitting by yourself using a computer/phone) but if you want to know, read your mortgage conditions and insurance policy. I wouldn't expect them to apply a more stringent policy to lodgers than to yourself though.

I presume you had already checked that having a lodger was ok with your lender/insurer?

Afraid not. HMRC kicked me off rent a room because one lodger works from home one day a week. I triple checked, because two years ago I was told it made no difference. The rent a room help sheet says evenings and weekends is ok. SpareRoom say this is news to them. But now I have to pay tax on most of the rent.

Another thing you have to watch out for is capital gains tax when you sell. I understand the principles, but when I looked at the form I was clueless. And you have to report it within 60 days of selling, AND, I think, on your next self assessment.

The principle is that if you rent out 40% of your house, you pay tax on 40% of your gain, less Letting Relief.

Regarding CGT when you sell your property having rented out some rooms to lodgers:

Can I just start by saying that the below workings out are from someone else as I am not smart or knowledgeable enough to have done it myself.  It needs to be checked by others on here who know what they are talking about.

But my understanding of your CGT situation is as follows. (I am making three assumptions:  1)  that you lived in the house alone for 9 months after buying it, 2) that you moved out after 10 years, and 3) that your equity gain is £100k):

£100k gain in house equity on house.

Lived alone for 9 months after buying the house. Has 9 months PPR at the end of ownership. (9 months + 9 months = 1.5 years of PPR). Sold house after 10 years of ownership.

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

15% of £100,000 profit = £15,000, which is exempt from CGT.

The remaining £85,000 is subject to CGT. But only 40% of it. Because that is the portion which was let.

40% of £85,000 = £34,000 which is taxable.

However, additional tax relief is available (Lettings Relief). This is the lowest of these three figures: £40,000 (default) or £51,000 (the 60% of the £85,000 used as the owner's home) or £34,000 (the 40% part of house let out).

£34,000 is therefore used as it's the lowest figure of the three.  £34,000 taxable gains is cancelled out by £34,000 tax relief. No CGT to pay.

Does this CGT apply even to your main and only home? Or when moving home? 

Also, how is that 40% calculated? Is it the percentage of bedrooms let out or does it have to include kitchen, lounge and bathrooms?
Thanks

1404

pieroabcd said:

1404 said:

FrnC said:

user1977 said:

HMRC only care about how much rent you're getting.

I doubt anybody has a problem with working from home these days (in the sense of sitting by yourself using a computer/phone) but if you want to know, read your mortgage conditions and insurance policy. I wouldn't expect them to apply a more stringent policy to lodgers than to yourself though.

I presume you had already checked that having a lodger was ok with your lender/insurer?

Afraid not. HMRC kicked me off rent a room because one lodger works from home one day a week. I triple checked, because two years ago I was told it made no difference. The rent a room help sheet says evenings and weekends is ok. SpareRoom say this is news to them. But now I have to pay tax on most of the rent.

Another thing you have to watch out for is capital gains tax when you sell. I understand the principles, but when I looked at the form I was clueless. And you have to report it within 60 days of selling, AND, I think, on your next self assessment.

The principle is that if you rent out 40% of your house, you pay tax on 40% of your gain, less Letting Relief.

Regarding CGT when you sell your property having rented out some rooms to lodgers:

Can I just start by saying that the below workings out are from someone else as I am not smart or knowledgeable enough to have done it myself.  It needs to be checked by others on here who know what they are talking about.

But my understanding of your CGT situation is as follows. (I am making three assumptions:  1)  that you lived in the house alone for 9 months after buying it, 2) that you moved out after 10 years, and 3) that your equity gain is £100k):

£100k gain in house equity on house.

Lived alone for 9 months after buying the house. Has 9 months PPR at the end of ownership. (9 months + 9 months = 1.5 years of PPR). Sold house after 10 years of ownership.

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

15% of £100,000 profit = £15,000, which is exempt from CGT.

The remaining £85,000 is subject to CGT. But only 40% of it. Because that is the portion which was let.

40% of £85,000 = £34,000 which is taxable.

However, additional tax relief is available (Lettings Relief). This is the lowest of these three figures: £40,000 (default) or £51,000 (the 60% of the £85,000 used as the owner's home) or £34,000 (the 40% part of house let out).

£34,000 is therefore used as it's the lowest figure of the three.  £34,000 taxable gains is cancelled out by £34,000 tax relief. No CGT to pay.

Does this CGT apply even to your main and only home? Or when moving home? 

Also, how is that 40% calculated? Is it the percentage of bedrooms let out or does it have to include kitchen, lounge and bathrooms?
Thanks

It's when you sell your main residence (move home) having been renting out rooms to lodgers. 

Bathrooms don't count, I think. But other rooms do - bedrooms, living room, kitchen, office etc. 

Houses you let out, which you don't live in, are not entitled to Lettings Relief. Only your main residence.

Again: I am not a knowledgeable person on this. This is information I have acquired from elsewhere and may be wrong. Do your own research.

pieroabcd

Neither am I! 
This page though seems very important 
https://www.gov.uk/tax-sell-home/let-out-part-of-home#:~:text=You may have to pay,pay you rent or housekeeping

"You are not considered to be letting out your home if either:

• you have a lodger who shares living space with you"

  
  

pieroabcd

It *seems* to imply that having 1 Vs 2 lodgers makes a difference with regards to having a letting/business use.

Anyone has more knowledge on the subject?

1404

pieroabcd said:

It *seems* to imply that having 1 Vs 2 lodgers makes a difference with regards to having a letting/business use.

Anyone has more knowledge on the subject?

If you're asking about CGT when you sell, what part of my breakdown isn't clear? 

pieroabcd

1404 said:

pieroabcd said:

It *seems* to imply that having 1 Vs 2 lodgers makes a difference with regards to having a letting/business use.

Anyone has more knowledge on the subject?

If you're asking about CGT when you sell, what part of my breakdown isn't clear? 

My question is if the CGT applies even if the owner has had only one lodger at any time during his ownership (rather than 2).