2 lodgers - letting relief and CGT
Discussion
Hi All
Would really appreciate help on the following :
I am thinking of having 2 lodgers but I concerned about the effect this may have on CGT when my residential property is sold
If you only have one lodger and a second one periodically how do you apportion this for tax purposes?
If the property is going up in value and say you live in the property for 30 years but had two lodgers for 3 years and say one for 8 years , is there a calculation that is used ? or are you able to just claim private residence relief and letting relief of £40000 (max) and it doesn’t matter how long you have two lodgers for?
It seems if you had 2 lodgers several years ago ,and the value of the property continues to increase, the CGT would also continue to increase ,unless there was a limited CGT taxable charge just for the period the lodgers stayed at the property
Hope this make sense !
Thank you
24/7
Would really appreciate help on the following :
I am thinking of having 2 lodgers but I concerned about the effect this may have on CGT when my residential property is sold
If you only have one lodger and a second one periodically how do you apportion this for tax purposes?
If the property is going up in value and say you live in the property for 30 years but had two lodgers for 3 years and say one for 8 years , is there a calculation that is used ? or are you able to just claim private residence relief and letting relief of £40000 (max) and it doesn’t matter how long you have two lodgers for?
It seems if you had 2 lodgers several years ago ,and the value of the property continues to increase, the CGT would also continue to increase ,unless there was a limited CGT taxable charge just for the period the lodgers stayed at the property
Hope this make sense !
Thank you
24/7
With a single lodger there should be no issue as long as you adhere to the Rent a Room Scheme rules.
With multiple lodgers, you cannot make use of the Rent a Room provisions. This means:
a) you need to return rental income and expenditure figures to HMRC (through self assessment) so you can pay tax due on any rental profits
b) when you come to sell the property there is going to be some sort of Capital Gains Tax computation required, and possibly a Capital Gains Tax bill to be paid
As the property is also your Main Residence, some of any gain will be exempted from CGT. The tricky part is working out how much of the gain is exempt and how much will be taxable.
The gain needs to be apportioned taking into account the following factors -
a) how long you owned the property (date of purchase to date of disposal)
b) the number of days (yes days
) within that period in which you had MULTIPLE lodgers in place
c) if there were periods where you had a single lodger AND the rent received was under the Rent a Room Scheme thresholds, that period would also be exempt. So, you would need to remove those Single Lodger Periods from the overall calculations
d) an apportionment also needs to be made to take into account the "space" rented out to the tenants. This can be done on a "room" basis or a "floor area" basis.
If the property is jointly owned, you will each have to split the gain in two and return your own shares of the gain on your own CGT submissions.
CGT on residential property now has to be returned to HMRC AND PAID within 60 days of the date of disposal.
You may also need to submit again at after the end of the tax year under the Self Assessment system. This is advised as the original CGT calculated to satisfy the 60 day deadline will, in many cases, be wrong.
I have completed a number of 60 day submissions and EVERY one of them needed corrected when it was time for completing the Self Assessment tax return. This is not because errors were made but because the CGT calculation needs to take into account your TOTAL income from all sources in a given tax year. At the time the 60 days submission is made it is highly likely that your other income for the tax year may not be known with accuracy.
This is especially true if the CGT submission has to be made early in the tax year.
UK tax works best when you know exactly what your income for the tax year is/was. Any tax system that tries to collect tax in advance part way through the year is bound to be an estimate as the full annual income situation cannot be known with certainty until the tax year has ended.
Hope that helps.
With multiple lodgers, you cannot make use of the Rent a Room provisions. This means:
a) you need to return rental income and expenditure figures to HMRC (through self assessment) so you can pay tax due on any rental profits
b) when you come to sell the property there is going to be some sort of Capital Gains Tax computation required, and possibly a Capital Gains Tax bill to be paid
As the property is also your Main Residence, some of any gain will be exempted from CGT. The tricky part is working out how much of the gain is exempt and how much will be taxable.
The gain needs to be apportioned taking into account the following factors -
a) how long you owned the property (date of purchase to date of disposal)
b) the number of days (yes days
) within that period in which you had MULTIPLE lodgers in placec) if there were periods where you had a single lodger AND the rent received was under the Rent a Room Scheme thresholds, that period would also be exempt. So, you would need to remove those Single Lodger Periods from the overall calculations
d) an apportionment also needs to be made to take into account the "space" rented out to the tenants. This can be done on a "room" basis or a "floor area" basis.
If the property is jointly owned, you will each have to split the gain in two and return your own shares of the gain on your own CGT submissions.
CGT on residential property now has to be returned to HMRC AND PAID within 60 days of the date of disposal.
You may also need to submit again at after the end of the tax year under the Self Assessment system. This is advised as the original CGT calculated to satisfy the 60 day deadline will, in many cases, be wrong.
I have completed a number of 60 day submissions and EVERY one of them needed corrected when it was time for completing the Self Assessment tax return. This is not because errors were made but because the CGT calculation needs to take into account your TOTAL income from all sources in a given tax year. At the time the 60 days submission is made it is highly likely that your other income for the tax year may not be known with accuracy.
This is especially true if the CGT submission has to be made early in the tax year.
UK tax works best when you know exactly what your income for the tax year is/was. Any tax system that tries to collect tax in advance part way through the year is bound to be an estimate as the full annual income situation cannot be known with certainty until the tax year has ended.
Hope that helps.
Thank you Eric this is very helpful but I am still unclear as to the calculation for how long lodgers stay at the property and whether this is appreciated when working out the CGT calculation
for example if you had two lodgers for 3 years say 10 years ago and then you to choose to sell your house , would you still only be able to apply £40000 letting relief against the gain after PRR is deducted ? the value of the house may have increased over 10 years but the income was received a long time ago ,
if you sold after the lodgers left it is likely the letting relief would be worth more to reduce CGT tax rather than 10 years later when the property may have increased in value by for example 50%
also if you have a single lodger but the income is above the rent a room threshold , does that mean you lose all your PRR on the whole property when you sell it?
I thought you could have a single lodger and it would not affect PRR, no matter how much the income
for example if you had two lodgers for 3 years say 10 years ago and then you to choose to sell your house , would you still only be able to apply £40000 letting relief against the gain after PRR is deducted ? the value of the house may have increased over 10 years but the income was received a long time ago ,
if you sold after the lodgers left it is likely the letting relief would be worth more to reduce CGT tax rather than 10 years later when the property may have increased in value by for example 50%
also if you have a single lodger but the income is above the rent a room threshold , does that mean you lose all your PRR on the whole property when you sell it?
I thought you could have a single lodger and it would not affect PRR, no matter how much the income
I'm not going to go into too much detail regarding your own personal situation. I will only talk in general terms.
If you want specific advice you will need to see an accountant or a specialist tax adviser.
If you have been receiving rent from a single lodger over the Rent a Room level, then you should already have been submitting rental income and expenditure figures to HMRC and paying any tax on the rental profits arising.
Also, if the Rent a Room scheme did not apply, then even that single lodger's income will necessitate including his period in the house as part of any CGT calculations.
If you are still living in the property at the date of disposal, you can still avail of the Commercial Lettings Relief. If you have already moved out of the property, then you lose that relief - which can be worth up to £40,000.
If you want specific advice you will need to see an accountant or a specialist tax adviser.
If you have been receiving rent from a single lodger over the Rent a Room level, then you should already have been submitting rental income and expenditure figures to HMRC and paying any tax on the rental profits arising.
Also, if the Rent a Room scheme did not apply, then even that single lodger's income will necessitate including his period in the house as part of any CGT calculations.
If you are still living in the property at the date of disposal, you can still avail of the Commercial Lettings Relief. If you have already moved out of the property, then you lose that relief - which can be worth up to £40,000.
As for CGT, you should get relief up to £40k. The best way to approach this is by square footage of the let parts vs non let parts, and time apportion the result.
Eg, let 1/4 of a house for a total of 50% of your ownership time, would result in 1/8 of the total gain being chargeable.
Deduct (up to) £40k letting relief.
Deduct annual exemption/losses.
Equals Net chargeable gain.
Eg, let 1/4 of a house for a total of 50% of your ownership time, would result in 1/8 of the total gain being chargeable.
Deduct (up to) £40k letting relief.
Deduct annual exemption/losses.
Equals Net chargeable gain.
Thanks everyone
In the end I used this and decided it was not worth it
https://www.which.co.uk/money/tax/capital-gains-ta...
In the end I used this and decided it was not worth it
https://www.which.co.uk/money/tax/capital-gains-ta...
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