Renting out a room to a really filthy lodger...

[calgontablet]

If I rent out a room to someone, I believe the first £4000 or so is tax exempt. As it should be. Fine – I get this. And then, when it’s above this amount, I’d have to pay tax on the “profit,” right? – e.g. what he/she pays over and above the £4k. So, say he/she paid £400 a month to me? Well, this would equate to £4,800 a year, meaning I’d have to pay 20% of that £800 to HMRC (assuming that’s the tax barrier I’m at, of course)…so, by my reckoning, the tax man would get about £200 from me per year. Right?

But...Here’s where things get a bit weird. For instance, as a leaseholder, if I’ve been served, during the course of my ownership, various projects that I’ve been expected to pay towards by the freeholder/managing agent e.g. having to pay towards replacement windows/block maintenance costs etc...well, can it be argued that my ‘profit’ isn’t actually profit because I’ve incurred costs directly due to my homeowner/leaseholder status? In fact, how far do other costs as a homeowner get taken into account e.g. insurance, service charges etc?

Also, does anyone know where the profit/"not to profit" line actually gets drawn? For instance, if I pay £1000 a month to my bank and rent out a room at £400 a month and I one day decided to voluntarily start paying back far more to my mortgage lender as an overpayer, does HMRC view the BASIC amount I should be paying on my mortgage monthly as the line where the profit margin gets implemented? With me on this? I hope someone can help! Thanks!!

[Thompsons]

If you opt in to the rent a room scheme, you cannot offset any expenses against your income.
However, you can opt out of the scheme.
http://www.hmrc.gov.uk/manuals/PIMMANUAL/pim4030.htm
If you opt out of the scheme, you can claim expenses against income. The election may be worth it if your rent from the lodger is over the limit.

[calgontablet]

Thanks. This is very helpful.