Argument about Lodgers and Tax!

Badger_Lady

Can you guys help me settle an argument?

My mother and I were discussing tax earlier today (we're not always boring, honest ), and trying to predict how much (if any) I would need to pay next April 2009 on income from my two lodgers.

The main argument was over what could be off-set, and in what proportions. We hunted through the directgov website and there wasn't enough detail to answer our questions.

(before we get onto it, my rental income is too high to qualify for the Rent a Room scheme, so I am doing it by tax return)

What can I off-set out of these?
- Mortgage interest £630 pcm
- Buildings insurance £120 pa
- Contents insurance £120 pa
- Gas bill £40 pcm
- Electric bill £40 pcm
- Wireless Broadband / V+ TV package £25 pcm
- TV licence £11 pcm
- Cleaner £20 pw
- Toilet rolls and handsoap £20 pcm
- Wear and Tear to furnished rooms
- Anything else?

Income is:
- £620 pcm room rental
- £10 pw cleaner (specific to one of the rooms – does his ironing etc)

Will I be liable for any tax at all and, if so, approximately how much?

Cheers

sammyjammy

£20 per month for toilet rolls and handsoap? Blimey does someone in your house have a little problem....

Can't help I'm afraid but you certainly would have to pay some tax, you'd need to take off the proportion that applies to you as well, things like TV licence you'd have to pay anyway....

RAS

Hi

First off there is the lodger's allowance which is 370ish per month tax free.

On top of this, I would have thought

Any increase in, or their proportion of the utility bills,
the cleaner
and the increased insurance costs.

But not wear and tear etc.

If you take the rental route (in which you offset mortgage interest etc), you could become liable for capital gains tax when you sell, so you need to take proper advice on this.

tbs624

Badger_Lady wrote: »

Income is:- £620 pcm room rental

That's your total room rentals income lumped together.... isn't it?? If it's per room I think I may have to re-think where I buy my next house............:D

Was it you who posted a couple of months ago about a potential Lodger from overseas?

PasturesNew

You've not listed council tax

PasturesNew

Here are the allowable expenses
Letting agent's fees
Legal fees for lets of a year or less, or for renewing a lease for less than 50 years
Accountants fees
Buildings and contents insurance
Interest on property loans
Maintenance and repairs (but not improvements)
Utility bills
Rent, ground rent, service charges
Council tax
Services you pay for, eg cleaning
Direct costs of letting the property, eg phone calls, stationary and advertising

(Source: http://www.spareroom.co.uk/content/info-landlords/rent-a-room-more/)

So you'd be able to offset 2/3rd of those (not your part).

m1ntie

Firstly you can still use the rent a room scheme with more than 1 lodger and or rent in excess of £4250. When you fill in your tax return you simply complete the property supplementary page. there is even a tick box to opt for the £4250 deduction for the RARS.

eg if your rental income is £9000 you deduct £4250 RARS allowance and pay tax ( at your highest rate) on £4750.

The alternative is to proportion everything as a % of the house - for this you will need to measure the floor area of the whole property. Then the area of rented out space available exclusively to your lodgers - this will in effect only be their bedrooms unless they have an en-suite. Common parts/ shared areas such as kitchens/lounges do not count.

eg if the total floor area of your house is 750 sq ft and you let out 2 rooms total 300sq ft the allowable proportion is 40%.

You can then offset 40% of the allowable expences against income. (You will need to keep all receipts)

You also need to be aware that with more than 1 lodger CGT may apply when you sell the house.

Personally having let rooms to lodgers for several years I opted for the £4250 allowance as it is much simpler

Badger_Lady

Thanks everyone!

M1ntie, that's very interesting... it's actually only around 20% of my house that's exclusively for lodgers (I provide a lot of communal space - gym, study, storage room etc...) so I guess I'm probably better off using the rent-a-room allowance instead.

tbs, yes that is both the rooms together! One's £300 and the other's £320 - both big rooms, but the more expensive one has a views across the whole City.

Yes, I did post about letting to the guy from Mauritius! His visa never came through, so he sacrificed his deposit. I decided not to let his room for now, because it comes in handy for guests. I may rent it out when I start University and the extra income will come in handy.

Badger_Lady

^ Come to think of it, this does seem a little unfair. Only 10% of the house is exclusively for me - the rest is used equally by us all We all have an equal-sized bedroom, and access to the rest of the house, so to say that I can only offset 20% of the expenses is a little mean

We use an equal amount of electric, gas, water (actually, Lodger 1 probably uses more than the rest of us put together)...

Of course, rules is rules and who am I to argue!?

Perhaps it would work out better if I changed my model to be £x rent plus bills, then I could charge for them separately, splitting them equally between us, and off-set the rent and bill-payments with the £4250. This would work out as a slightly higher off-set figure, right?

obsessed_saver

Think of the £620pcm as compensation for your "restriction" to 10% exclusive space. :P

PasturesNew

Yes, I'd change it to be rent + set amount for bills/etc.
Then put the rents in as Rent-A-Room and pay tax on the excess of that. Keeps it easy too. No hours of maths across a tax year when there've been various lodgers/not too.