Rent a Room Help

[thekingster]

Heres the scenario.

In the last year I have recieved about £8000 in rent (maybe less havent worked it out yet!)

My mortgage is interest only at £650 a month.

I pay all the bills monthly. Roughly £1100 per annum council tax, monthly - £55 electric, £25 gas, £40 water, £400 a year compulsory insurance, £120 tv license.

So 1100 + 660 + 300 + 480 + 400 + 120 = 3060

Mortgage per year of 7800 + 3060 = 10860.

I live in a 3rd of the house so deduct 3620 of the expenses leaving 7240.

Plus the fact that my bathroom had a major leak which caused a ceiling downstairs to collapse, the ceiling was covered under insurance but the bathroom had to be ripped out and redone at my expense.

As you can see 7240 is a lot more than the rent a room relief, so I would have thought I was better off taking this option. I just wanted to know anyone elses opinions. Am I better off not using rent a room? Or does this have some knock on effect in the future? As you can see there is quite a bit of difference or am I missing something?

Be simple with the answers please - i find tax... er .... taxing!!

[Tax Accountant]

Heres the scenario.

In the last year I have recieved about £8000 in rent (maybe less havent worked it out yet!)

My mortgage is interest only at £650 a month.

I pay all the bills monthly. Roughly £1100 per annum council tax, monthly - £55 electric, £25 gas, £40 water, £400 a year compulsory insurance, £120 tv license.

So 1100 + 660 + 300 + 480 + 400 + 120 = 3060

Mortgage per year of 7800 + 3060 = 10860.

I live in a 3rd of the house so deduct 3620 of the expenses leaving 7240.

Plus the fact that my bathroom had a major leak which caused a ceiling downstairs to collapse, the ceiling was covered under insurance but the bathroom had to be ripped out and redone at my expense.

As you can see 7240 is a lot more than the rent a room relief, so I would have thought I was better off taking this option. I just wanted to know anyone elses opinions. Am I better off not using rent a room? Or does this have some knock on effect in the future? As you can see there is quite a bit of difference or am I missing something?

Be simple with the answers please - i find tax... er .... taxing!!

You are not missing anything. It is upto you to work out which one works out better for you.

In your case, it is better for you to be taxed on the basis of claiming the actual expenses rather than rent a room relief.

Just a couple of points to think about:

(1) Council tax is personal to you and therefore you need to check whether you are eligible to include this in your total expenses in the first place.

(2) If you claim Rent a Room relief, the letting is disregarded for CGT purposes, ie your whole property qualifies for PPR relief as if you had occupied it yourself theoughout your ownership. Same cannot be said if the letting rooms were exclusively used by the tenants and you choose to be taxed on your rents on the normal basis. However, the availability of so many reliefs and allowances for CGT means that CGT is not normally a problem for most owner- occupiers who let part of their property. Therefore, notwithstanding the small potential disadvantage in the calculation of CGT, you should ignore the rent a room relief and claim on the normal basis.

Ramnik

[thekingster]

Thanks for you reply, it has been helpful.

Sorry but I do understand part 2 at all.

[Tax Accountant]

Thanks for you reply, it has been helpful.

Sorry but I do understand part 2 at all.

The comments at paragraph numbered 2 of my earlier reply were to do with Capital Gains Tax (referred to as CGT) if and when you decided to sell the property in the future.

Basically, if you lived in the house as your only residence throughout your ownership, there is no liability to Capital Gains Tax as it is covered by exemption as your main residence (often referred to as PPR relief).

If the whole or part of the house has been let sometime during your ownership, there MAY be some Capital Gains Tax liability on the profit made on the sale of the house compared to what you paid for it when it was bought.

However, if it was let under Rent a Room relief, this type of letting is ignored for the purposes of Capital gains Tax, it lettings under rent a room relief is exempted from Capital gains Tax.

If it is let outside of Rent a Room Relief, it MAY make you liable to Capital Gains Tax on part of your gains. Most probably it won't. But this will be dependent on many other factors.

Sorry if I have confused you even more. But it is not easy to keep the answers short and simple, especially if all the required information is not available in the query.

Ramnik

[thekingster]

No that makes a lot more sense now, thanks a lot. I think in my case its best to use expense rather than rent a room relief

[Tax Accountant]

No that makes a lot more sense now, thanks a lot. I think in my case its best to use expense rather than rent a room relief

You are welcome.

Ramnik