Rent-a-Room: Rent Query

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    Rent-a-Room: Rent Query

    Hi

    First time user of this forum and to using Rent-a-Room, so please bear with me.

    I have a room to rent in my flat and wish to make use of the Rent-a-Room scheme. However, I wish to seek clarification with you guys on whether the amount of gross receipts for the purposes of the scheme should include or exclude utility bills.

    I have a very nice 2 bed flat in Bethnal Green, London which I estimate I could let for £625pcm rent plus bills of c£105pcm (Electric, Water, Council Tax, Broadband) = £730pcm.

    The problem is that the annual rent comes to £7,500 which is greater than the current Rent-a-Room allowance of £4,250, but equal to the £7,500 which comes into effect in April 2016.

    For the purposes of calculating the taxable income, should I be including or excluding bills of £105pcm / £1,260pa. I don't see why I should, since in effect it seems that I would be paying tax on these costs which @ 20% would be £252pa.

    I know I can go down the rout of evidencing all income / receipts etc, but that just seems like a lot of hassle and to me starts getting complicated.

    Any advice, greatly appreciated.

    Thanks

    Sparra

    #2
    Rent A Room Relief only applies to a main residence - i.e. a lodger rather than a tenant.

    Will you be living in the flat also?

    Comment


      #3
      Thanks for the prompt reply. Yes, I will be living at the flat and will be letting the other room.

      Sparra

      Comment


        #4
        Have you read HMRC's guidance ?

        https://www.gov.uk/rent-room-in-your...-a-room-scheme

        Comment


          #5
          https://www.gov.uk/government/public...r-traders-2015

          £105 sounds a bit high.

          Regards Peter

          Comment


            #6
            King Maker

            Yes I've read the guidance and it says ...

            "If you pay the utility bills for the entire house, you can include a charge in the rent or install pre-paid meters. You can only charge the amount you’ve paid for gas and electricity plus VAT or you could face civil proceedings. Read Ofgem’s rules on the resale of gas and electricity for more information."

            So what it is saying is that 'you can' include a charge in the rent, not that you must.

            Con Spareroom.com, some ads advertise a rent inclusive of bills and some say bills are on to of the rent.

            MHRC goes onto say that 'Income Tax is payable on rental income you receive' but does not say if this is inclusive of bills or not.

            If I am sharing bills with the lodger and the total rent + bills for the year takes me over the £4,250 threshold (£7,500 threshold), then it seems to me that I will be paying tax on the cost of the bills as well.

            Thanks

            Comment


              #7
              Peter

              £105.60 is the shared cost between myself and proposed lodger made up as follows:

              Council Tax £38.26
              Electric £30.00 (no gas at flat)
              Water £18.79
              Broadband & Line Rental £12.50
              TV licence £6.06

              Regards

              Sparra

              Comment


                #8
                So how much is the lodger going to pay. ? Your rental income it the total he pays you. You can then deduct expenses i.e. his proportion of the £105.60 to reveal the profit There is an examle in the link I gave you. Regards Peter

                Comment


                  #9
                  Hi Pete

                  Thanks for reply. I am hoping to charge the lodger a monthly rent of £730, but I don't know if to say this is a rent of £625 plus £105 bills, or rent of £730 including Bills.

                  How is this treated for Rent-a-Room? As can be seen from the examples below by saying the rent is inclusive of bills, my profit subject to tax is £4,510 rather than £3,250. Personally, I don's understand or see why I should be taxed on the additional income, which only arises due to including the cost of bills in the rent.

                  Hope this is clear now.

                  EXAMPLE INCLUDING BILLS

                  Monthly Rent 625
                  Monthly Bills (Council Tax, Utilities, Broadband) 105
                  Monthly Rent (inc. Bills) 730
                  Annual Rent (inc Bills) 8,760

                  LESS Rent-a-Room Tax Allowance 4,250

                  Profit subject to tax 4,510


                  EXAMPLE EXCLUDING BILLS

                  Monthly Rent 625
                  Monthly Bills (Council Tax, Utilities, Broadband) Bills Excluded
                  Monthly Rent (excl Bills) 625
                  Annual Rent (excl Bills) 7,500

                  LESS Rent-a-Room Tax Allowance 4,250

                  Profit subject to tax 3,250

                  Kind regards


                  Sparra

                  Comment


                    #10
                    £730 or £625 are both way too high (currently) for rent-a-room. You will need to complete the property section of a self-assessment.

                    If you don't wish to do that yet stay legal do not charge more than £81:50/week, for everything.
                    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


                      #11
                      Artful, thanks for your reply. Spareroom.com's Rental Index (May 2015), gives a rent of £692 (inc Bills) for a double per month in London - East and £963 (inc Bills) for a double in London - East Central. Or on a weekly basis of £159.60 for London -East and £222.23 for London - East Central.

                      Spareroom note that Demand / Supply ratio is strong for London East and very strong for London - East Central.

                      My double room is in Bethnal Green (E2) and less than 5 mins walk to the tube. £730 including bills is not excessive for this area.

                      HMRC guidance seems to suggest that I can charge any rent, but any profit over and above the rent-a-room allowance is taxable. My reading is that it is still legal, but the profit becomes taxable.

                      My original question was whether for the purposes of calculating what profits would be subject to tax, whether it is only the rental income which is used excluding the cost of bills (Council Tax, Water, Electric, Broadband).

                      PS A copy of Spareroom.com's Rental Index can be downloaded from http://www.spareroom.co.uk/content/i...vice-landlord/

                      I look forward to hearing from you.

                      Sparra

                      Comment


                        #12
                        Originally posted by Sparra View Post
                        My original question was whether for the purposes of calculating what profits would be subject to tax, whether it is only the rental income which is used excluding the cost of bills (Council Tax, Water, Electric, Broadband).
                        You should either ring HMRC or go to see an accountant to get your specific question answered. Please let us know the reply.

                        Comment


                          #13
                          Mrs Mug

                          Funnily enough I did just that this morning. Had to wait about 20 mins hanging on, but got there in the end. The advice was that bills should be including in the rent for the purposes of the Rent-a-Room allowance.

                          Sparra

                          Comment


                            #14
                            In case anyone else wants an answer to this. All bills or any other contribution towards the upkeep the lodger gives you is subject to and is part of the rent a room scheme. They must be totalled and anything over the limit is taxable.

                            Comment


                              #15
                              Does that mean if you are charging £700 per month = £ 8400 per year, then you can deduct 7500 rent-a-room allowance and be charged tax on the excess of £8400-7500 =£ 900 ?

                              Comment

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