Rent-a-Room: Rent Query

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    Yes - HMRC call this Method B, but it is not the default method and so has to be claimed within a 22 month time limit.


      Just to add to the discussion, as I have been doing the rent-a-room now for a couple years.

      You have 2 methods for paying taxes:

      1) WITH the rent-a-room relief: You total your rent collected in the tax year (obviously excluding any deposits) and deduct £4,250 allowance. It does not matter how much costs you incurred in your rent income - all counts as rent income.

      2) WITHOUT the rent-a-room relief: Given that relief is pretty low for London (at least until 2016), in some rare instances the landlord will be better off tallying all income and then deducting costs incurred. Under this method the taxpayer is not entitled to the £4,250 relief.

      You have to be careful though, because in the instances of fixed costs you may not be able to include them. For instance, if you pay £800 for your council tax after having a discount and £1000 with 2 individuals - you could only deduct £200 from your expense as this is the marginal cost of having the lodger. You would not be able to deduct £500 as your cost.

      After doing this for a couple years, I think (although I have never tried it) the second method may be only sensible if you have very high mortgage costs, are a high rate taxpayer and collect rents in excess of >£10k. Not a very common combination for a typical person taking on a lodger. Otherwise, the hassle of collecting the receipts, doing the calculations and worrying if you have done it all correctly is just not worth it.


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