Attribute property income tax rules to 6 months lodger vs 6 months whole house rent?

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    Attribute property income tax rules to 6 months lodger vs 6 months whole house rent?



    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

    #2
    The occupants when you are not living there are not lodgers, if they're living there, they're tenants, if they're not living there they're either holiday lets or some horrible grey area.

    Option 2 is the most appropriate, as you can't use the rent-a-room scheme for the non-lodger six months.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3


      They would be guests from Airbnb which I've read means they could be classed as a licensee, less rights than a tennant.

      I'll get some professional tax advice as well but thanks.

      Comment


        #4
        Originally posted by Mark_1111 View Post

        They would be guests from Airbnb which I've read means they could be classed as a licensee, less rights than a tennant.

        I'll get some professional tax advice as well but thanks.
        Only 2 n's in tenant. AirBnB occupants will be depending on circumstances (possibly paperwork) at least either tenants or "lodgers"

        Get some tray in being a landlord and landlord / tenant law. It ain't simple!
        I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

        Comment


          #5
          Originally posted by Mark_1111 View Post
          They would be guests from Airbnb which I've read means they could be classed as a licensee, less rights than a tennant.
          If you're doing this through AirBnB they'll fall nicely into a grey area - they'll be treated more like hotel guests or people staying on holiday.

          The tax rules for holiday lets are quite complex in themselves.

          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            It seems option 1 ( renting room in landlord's home ) is acceptable to Tax Office. But you have to serve notice on HMRC each year , to exercise the right to pay tax of the gross rental income minus £7500.

            https://www.gov.uk/government/public...om-scheme-2021

            Comment


              #7
              Section 2 says :
              When you cannot use the Rent-a-Room Scheme

              You cannot use the scheme if the accommodation is:
              • not part of your main home when you let it
              • not furnished
              • used as an office or for any business – you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities
              • in your UK home and is let while you live abroad.
              Sorry, option 1 is not acceptable because short term rentals by AirBnB is a business.

              Comment

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