Renting out a room and tax

[hiasakite]

Question to the PH collective which has been very helpful to me so far...

If someone 'owns' a house (with a mortgage on), and they wish to let a room to a friend, under what circumstances is that income taxable?

This is assuming the 'rent' from friend is less than the mortage repayments.

Are there any circumstances where this would be tax free?....and are there any implications for eventual ownership of the property?

Thanks for your advice all..

Edited for cr@p spelling



>> Edited by hiasakite on Wednesday 27th July 20:34

[Nevin]

There is a specific rent a room allowance which allows you to earn APPROXIMATELY £4200 a year from renting a room out before you are liable to any extra tax. Check on the Revenue website for the current limit.

[premature]

From the Inland Revenue website

Do the rules mean I don't have to pay tax on the rent I get?
As long as the total rent you get during the tax year is no more than £4,250, you do not have to pay tax on that income. If your letting amounts to a trading activity, there are certain capital allowance considerations of which you must take account. We explain these on page 6.

If we do not send you a tax return and you receive rent of £4,250 a year or less, you do not need to tell us about this income. If you do get a tax return, all you have to do is tick a box to confirm that your rental income is £4,250 a year or less.

[hiasakite]

Fantastic... cheers for that

[hustlebabe]

Rich and happy fella on the horizon then
Irrelevent but it was a tax break introduced after the 2nd World War when housing was a chronic problem - but hey whats new there!
It was done to encourage people to rent out their spare rooms. Remember my gran telling me about it

[Nevin]

Damn, I was £50 out.

[Eric Mc]

The Rent a Room scheme was intoduced in 1992, not 1945.

[hustlebabe]

Eric Mc said:

The Rent a Room scheme was intoduced in 1992, not 1945.

Oh....so what was my gran up to....?

[chrisgr31]

Is it possible to elect to pay tax on it? With the advantage being that you can then claim the tax back or repairs and maintenance to the house, proprtioned for the room let.

Not sure if it could be benefical!

[Eric Mc]

There may have been a similar schem in place after WW" but it certainly wasn't in more recent times. The current Rent a Room scheme was introduced by John Major's government as an asist for people struggling with negative equity in the early 1990s.

You can opt to return your rental income from lodgers as normal rental income if you want to. Why anyone would want to, I don't really know.

[miniman]

I'm pretty sure that there are implications relating to the mortgage provider that you need to consider also.

I believe they will want to know about anyone over 18 who is living in the property and may want them to sign a document stating that they have no claim on the property and will vacate should the mortgage company ever have to reposess.

[Rude-boy]

miniman said:

I'm pretty sure that there are implications relating to the mortgage provider that you need to consider also. I believe they will want to know about anyone over 18 who is living in the property and may want them to sign a document stating that they have no claim on the property and will vacate should the mortgage company ever have to reposess.

Same as if you move the g/f or b/f in. Wonder how many people let the mortgage co. know though?

[minimax]

hiasakite said:

Question to the PH collective which has been very helpful to me so far... If someone 'owns' a house (with a mortgage on), and they wish to let a room to a friend, under what circumstances is that income taxable? This is assuming the 'rent' from friend is less than the mortage repayments. Are there any circumstances where this would be tax free?....and are there any implications for eventual ownership of the property? Thanks for your advice all.. Edited for cr@p spelling >> Edited by hiasakite on Wednesday 27th July 20:34

I think I must be missing something here. why are you going to declare it? the chances of anyine finding out are minimal, and you get some spare cash - bonus!

or are you the type of person that never asks for a cash deal from the garage/plumber/electrician?

[Eric Mc]

Beacuse it's acriminal offence not to.

I always laugh when people say to me "Oh, I have nothing to hide?"

It seems to me there are lots of people out there who have lots of things they are hiding.

Rent-a-room is very good in that it removes the legal requirement to have to declare that income.

[minimax]

Eric Mc said:

Beacuse it's acriminal offence not to. I always laugh when people say to me "Oh, I have nothing to hide?" It seems to me there are lots of people out there who have lots of things they are hiding. Rent-a-room is very good in that it removes the legal requirement to have to declare that income.

I know it's a criminal offence but so is doing 120mph on the queens highway and can you honestly say you've never done that?

it's a pointless argument to have anyway as I seem to recall you're an accountant and that must be like trying to explain to a veggie why steak is so good and why don't they try it

no hard feelings

[cotty]

hiasakite said:

Are there any circumstances where this would be tax free?

Yes if you dont tell them

A freind of mine rented out his room for a year and a half and did not tell anyone. The lodger was not registered as a voter at the address and all their post continued to be sent to their parents house. So no paper trail to the rented room. He never even changed the single occupancy discount on the council tax

[Eric Mc]

You are perfectly OK with Rent-A-Room. That's the beauty of the system. As long as the income does not exceed £4,250 per annum, you do not have to tell anyone.

It's one of the very few sensible tax laws around. I keep waiting for Gordon to abolish it.

[Rude-boy]

Proceeds of Crime Act Minimax, Money Laundering Regs?

[Eric Mc]

Rude-Boy

Exactly.

And they now all come under the auspices of the National Criminal Intelligence Service (NCIS). ALL defrauding of HM Customs and Revenue (including failure to disvclose sources of income) is now a serious fraud type of crime and will be categorised along with drug dealing, illegal arms dealing and terrorist funding.
In 2006, NCIS will be subsumed into the new Serious Organised Crime Agency (SOCA).

In case you might think that minor "frauds" will be treated leniently, Dawn Primorolo, when questioned directly in the House of Commons as to what the lower levels (de minimis) for reporting tax fraud might be, she said that there were none.

You have been warned.

[JagLover]

Eric Mc said:

In case you might think that minor "frauds" will be treated leniently, Dawn Primorolo, when questioned directly in the House of Commons as to what the lower levels (de minimis) for reporting tax fraud might be, she said that there were none. You have been warned.

I found out in my last training session that we are supposed to report anyone who files their annual return late.