Single Mum - renting out rooms? LONGISH

memorygirl

Hi Guys

Just about to move into our new home. On my own with two darling boys - aged 7 years old and 6 weeks.

The house is a refurb. (bought for 140K and will be eventually valued around 220K) - mainly because it was a complete hellhole and we are adding kitchen, bathrooms and jiggling the layout around to make it a 5 bed, 2 recept, 2 bath and dining kitchen stylee. The refurb is costed at 18K which a family friend is loaning me.

House is also in a market town in Scotland that hasn't seen any significant fall in prices and remains fairly buoyant - although I know some other areas have not been nearly so lucky.

This is not my “forever house” but in terms of location it is handy for my son’s school and walking distance to all amenities – library, shops, markets, parks etc. so suits me for a while in that aspect.

Over the next couple of years I am aiming to pull the start-up money I invested in our family business 8 years ago back out (50K) and with any profit I make from selling this house to try and find something to buy mortgage free with my boys. At least that is my ultimate dream.

I have been approached by the local college who have asked if I will consider letting out some rooms to either some students or some lecturers in the Academic year beginning at the end of August. This would generate some much needed income to help me pay off the refurbishment costs ( I am otherwise fairly debt-free)

The layout of the house would work for me quite well in terms of letting. The top floor has 2 double and one single bedroom, a family bathroom and family television/ sitting room. This could be given over exclusively to the use of our lodgers. The ground floor has one double and one single bedroom, a reception room, another family bathroom and the kitchen (which of course we would all share)

I know that under the rent-a-room scheme a certain portion of income can be classed as tax-free. My question is how do I attribute the rest? And what portion should I set aside for the taxman.

As I am living in the property I assume that the people would be classed as lodgers and I wouldn’t have to register as a HMO?

Would it be better if I were offering bed and breakfast? Or better that we all effectively “share” the kitchen and do our own thing.

What other issues should I consider? By the way I will only be lodging female students / lecturers as I feel safer doing that.

Please feel free to chip in with any comments or hints as I value the expertise on this thread.

Memorygirl

poppysarah

For a single mum you use the "we" and "our" a lot.

You need to look at the rent a room scheme. Stay within this limit and you avoid tax.
Earn more and pay tax. It's up to you.

Students might be noisy and not like having a baby about.

tbs624

Lots of helpful info here : http://scotland.shelter.org.uk/advice/advice-2486.cfm

and here: http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_4017804

on tax situation. You can either simply pay tax on the amount in excess of the tax-free allowance or pay tax on the whole amount and offset certain expenditure such as furnishings/services (like cleaning) - you need to go through all your possible expenditure and work out which way would be best for you. You'll have to comply with gas safety regs and let your insurer know (you may need to extend or change your policy.

PasturesNew

I'd say go for the adults, not the students.

Adults are better placed to fend for themselves in a family home, whereas the students (being away from home perhaps for the first time) might have problems with not knowing where they fit in and becoming withdrawn or they might go the other way and prove troublesome in that their culture/lifestyle is different to how you run your house.

Young adults, in their first "away from home" experience have many annoying traits (leaving lights on, heating on/windows open, banging doors, etc) or you might find yourself more involved in their daily living (providing meals etc).

I spent one season as a French Language School Host Family organiser for 14-18 year olds and had to place students and adults (Leader, Driver) and when just one decides to do something daft it can suck up hours of time.

You might have to check the HMO because of the number of floors and the fact it will be 3 separate households living under the same roof. Your council will be able to advise.

For the income, you would just put it on your tax return form. Declaring the whole amount, but only paying income tax on the amount over the allowance, at your usual tax rate. e.g. Rent a Room gives you £4250/year, if they are there at the beginning of August at, say, £300/month each then it will be 8 months' income that tax year. So 8 months x £300 x 2 lodgers. This is £4800. So you'd pay income tax on £4800-£4250=£550. If you pay tax at 20% you'd therefore pay £110 tax. However, if you do this the following year then you'll have those two from April-July, then 2 new lodgers, so a total of 12 months and then you'd have an income of £300 x 12 months x 2 lodgers = £7200, so a tax liability on about £4000 (approx £800 tax).

There are a few ways to work out the figures and it might be worthwhile you having a word with an accountant to advise you the best route to take on managing that income/tax situation, see if it is better to offset the costs against the income.

tbs624

poppysarah wrote: »

For a single mum you use the "we" and "our" a lot.

The OP refers to "our" business (as in 8 years ago) and "we " are refurbishing? As in maybe her family unit?

And when she later says "we share" I took that to mean her, her kids and her lodgers?

Not quite sure what point you were trying to make there poppysarah, nor how that helps answer any of the OPs questions?

memorygirl

Thanks guys

By "we" I mean me and my boys. With one being 7 nearly eight I have to consider him as part of "our team" too.

Good comment about the baby - the Accomodation officer doesn't feel that would be a huge problem as "my room" is well away from the spare rooms. BB is also breastfed so tends not to make much noise at night because he doesn't have to wait for a bottle.

Sounds like I need to pop off and create a spreadsheet to work out which method of "tax planning" is most suitable.

Anyone got any suggestions of where I can find a list of "allowable" expenses?

Many thanks

Memorygirl

poppysarah

If the OP has lots of family supporting her in this house venture she should also discuss with them and make sure they think she's doing the right thing.

With two small children life is very stressful and adding in lodgers may not be the best thing emotionally despite making financial sense.

Sharing with people is not something to undertake lightly.

I'm not sure whether you'd want to get police checks done on people, or whether personal references would make you feel ok.

memorygirl

PasturesNew wrote: »

I'd say go for the adults, not the students.

.

Think I might have to agree with you there PasturesNew. Probably because although I was the sensible one at college I can remember some of the scrapes my classmates got into.

Thank you for taking the time to respond so fully by the way.

The Accomodation Officer has suggested that I look at lodging some of her lecturers on 3 month secondments. From what I can make out I would have them from Monday night to Friday morning as they usually go home to their families for the weekend. Would seem like a good strategy, then they would not be disturbed by us being at home over the weekend if you see what I mean?

Probability of having more male than female lodgers in this case though.

Beetles off to make cup of coffee to help thinking process.

Memorygirl

memorygirl

poppysarah wrote: »

If the OP has lots of family supporting her in this house venture she should also discuss with them and make sure they think she's doing the right thing.

Family are supportive (Mum and Dad) but we are still at the fact finding stage and won't make any decisions until we are sure. It's early days yet.

With two small children life is very stressful and adding in lodgers may not be the best thing emotionally despite making financial sense.

Funnily enough I don't find the kids stressfull - they are both so laid back we often joke about getting castors fitted to the back of their heads - LOL. Also helps I think that I am not "emotionally invested" in the house - it really is just a means to an eventual end.

Sharing with people is not something to undertake lightly.

I agree. Although I house shared for years in London and find as long as everyone is clear about groundrules at the outset a lot of problems can e headed off at the pass. Also aware that this will cease to be our family home and will instead have to be regarded as a money-making "business" for the time we have lodgers. Bit of a shift in mindset for myself I feel.

I'm not sure whether you'd want to get police checks done on people, or whether personal references would make you feel ok.

If we go with Lecturers then they will all have been checked out anyways with "Disclosure Scotland". Everyone working with children has to go through checks - My Mum is on the Childrens panel and I am a Director of my son's school and we both have been fully "disclosed" - but thank-you a very valid and importand point.

kunekune

That might depend on the age of the students. In a university (England, though) this is only done if you have a student who isn't 18 yet.

memorygirl

kunekune wrote: »

That might depend on the age of the students. In a university (England, though) this is only done if you have a student who isn't 18 yet.

You are right kunekune. This is a local college that takes students from 16 and also has a large special needs and supported learning unit so all lecturers are disclosed - but it is certainly a point others may need to consider.

Thanks

Memorygirl