Tax on renting rooms and what happens when you sell? more tax?

muggz

I was wondering if you could help me with a question.

Im about to buy and live in a property with 3 bedrooms, I will let the other two bedrooms out to friends for £450 per room per month, the mortgage comes to £1250 per month. This is my only property.

How much of their payments will i have to get taxed on?

Also i plan to sell the flat after a year or two after I make some improvements, will any profits still be tax free being my main (and only) home? or does the taxman take a different view on the property once you have lodgers living with you, such as seeing it as a business or buy to let?

thanks for all your help

chappers

You can earn £4250 a year free of tax under the rent a room scheme, but can claim no expenses against that.
If you are earning over that then you are taxed after taking off your allowable expenses.
Have a look here http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017804

Either way as it is your primary residence there will be no CGT when you sell up.

Andy_Hamilton

If you go for a rent a room scheme you can make just over £4K tax free for renting a room. You could run it like a business if you need to buy furniture etc. You could also split there room rent from the all in price to be under the £4K because you do not need to pay any tax on money that goes directly to water, electric Council tax etc.

Lotus-eater

Blimey! Where do you live so that you can rent out two rooms in a shared house for £450 a month each? Or am I out of date.

beingjdc

Plausible. In out two bed flat we pay 705 and 530 respectively (Zone 2, London, cheap bit - would be much more North of the River).