Rent-a-Room: Rent Query

[JakubL]

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.

[King_Maker]

Gordon999,

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.

[Gordon999]

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 ?

[superdudeo]

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.

[Sparra]

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

[Mrs Mug]

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.

[Sparra]

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

[theartfullodger]

£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.

[Sparra]

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

[TaxationPete]

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

[Sparra]

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

[Sparra]

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

[TaxationPete]

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

£105 sounds a bit high.

Regards Peter

[King_Maker]

Have you read HMRC's guidance ?

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

[Sparra]

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

Sparra