I hope someone can give me some guidance over how to pay income tax on my property when I let one room part of the year and rent the whole house the rest of the year.
Here is my simplified scenario.
I am employed and a higher rate tax payer.
I have a two bedroom house, this is my only property.
For 6 months of the year I live in the house and rent a room to a lodger, for £1,000 a month.
For the remaining 6 months I rent the whole property to short-term lodgers (I do not live in the house). They pay £2,000 a month.
Gross property income for the year is £18,0000 (£6,000 + £12,000)
I would like to take advantage of the rent-a-room scheme and its £7,500 allowance.
Option 1:
Treat all property income under the rent-a-room scheme:
Taxable property income: £10,500 ( £18,0000 - 7,500)
Tax due: £4,200 (40% of £10,500).
Option 2:
Pay tax for the first 6 months following the rent-a-room scheme
Pay tax for the next 6 months for profit only (income minus allowable expenses)
Income for first 6 months: £6,000
Below $7,500 so exempt from tax.
Income for next 6 months: £12,000
Allowable expenses = £0 (to keep things simple)
Tax Allowance £1,000
Taxable property profit: £11,000 (£12,000 - £1,000)
Tax due: £4,400 (40% of £11,000).
Which option is acceptable or if neither is, what is ?
Thanks
Mark
Comment