Renting rooms in my house? tax/legal implications?

[jconsta6]

Hi All,

Any help appreciated on this.

After having a couple of house sales fall through over the last year, and the current leveling of house prices, I've decided not to sell my house.

The thing is, the reason I was selling in the first place was to down size - for lots of reasons that are boring I need a smaller house.

So, I've been thinking about renting out the rooms.

Can anyone give any pointers on tax implications - I seem to remember that if you rent out over X% of rooms then there are differnt rules etc? Do I need to still live there or can I rent them all out without me being on site?

Also, what if I turn the other rooms into bedrooms too? it's 3 story so has plenty of rooms that could be used as bedrooms. I'd easily get another 2 downstairs.

With curernt rents in the area around 85-105/week for private room rents it would certainly be the best use of the property as opposed to simply slashing the price and selling at a loss.

As far as I can tell, if I changed all the doors so as to fit locks on each room (its a victorian house and the doors and in need of restoration), turn the one ensuite into a main bathroom and put another bathroom in down stairs - giving 3 full size bathrooms, is there anything else to consider? i.e. do I need x amount of bathrooms per people in the house?

Also council tax - do they pay their own? or is it still mine as normal?

Any thoughts? and all help aoppreciated.

Thanks

JC

[Mx_Stu]

Initial thoughts:

Rent a room relief is available but in broad terms that is only available if you rent a single room in your residence and is up to a certain amount per year.

Any renting above the single rent a room would be taxable on you and therefore you will have to inform HMRC of the profit made from rent less allowable expenses.

Also my thoughts are council tax would be the responsibility of the individuals actually living in the house.

You will also have wider implications on capital gains tax when you do eventually sell the place.

A good starting point would be:

http://www.taxationweb.co.uk/guides/tax_on_rental_...

[Eric Mc]

Mx_Stu said:

Initial thoughts:

Rent a room relief is available but in broad terms that is only available if you rent a single room in your residence and is up to a certain amount per year.

Any renting above the single rent a room would be taxable on you and therefore you will have to inform HMRC of the profit made from rent less allowable expenses.

Also my thoughts are council tax would be the responsibility of the individuals actually living in the house.

You will also have wider implications on capital gains tax when you do eventually sell the place.

A good starting point would be:

http://www.taxationweb.co.uk/guides/tax_on_rental_...

As mentioned, technically the Rent A Room scheme is redstricted to a single room rental. The other limit is the maximum amount allowed which is £4,250 per annum.
If your rental income exceeds thsi you have to swith over to declaring the rental income in the more traditional way i.e. showing a schedule of rental income against which is offset the usual types of expenses allowed.
This includes mortgage interest - or, in this case, a sensible apportionment of mortgage interest. Allocation of house repairs, insurance, light and heat costs etc would all be allowable too. With these expenses properly accounted for, there is a strong likelihood that no profit on the rental actually accrues. If that is the case, no tax will be payable.

I would not think that Capital Gains Tax would be a significant matter if and when the hosue is eventually sold. The normal assumption is that your home is completely exempt. Unless you have significantly altered the property to turn part of it into a business premises or significantly changed the nature of the accomodation so that the "lodgers" are not in the main domestic part of the property, CGT can be ignored.

[jconsta6]

thanks a lot for the replies.

So basically, do it and just ensure its declared correctly on my self assesnent. If I can offset income against mortgage intreste that Wouk cover a minority of income.

Thanks all

Tim

[Eric Mc]

jconsta6 said:

thanks a lot for the replies.

So basically, do it and just ensure its declared correctly on my self assesnent. If I can offset income against mortgage intreste that Wouk cover a minority of income.

Thanks all

Tim

Back to front -

you offset a relevant proportion of mortgage interest against the rental income.
Don't forget the other costs I mentioned too as they can be deducted from the rental income as well.

The tricky bit is working out the "relevant proportion" for these costs. The Revenue has no hard and fast rules as long as the method used by the tax payer is "reasonabl;e" (that awful word always crops up in tax law).

The most common way would be to do it on a room by room basis. So, if you have rented out two of the (say) six main habitable rooms in the hose, 2/6 (or 1/3) of the relevant costs would be offsetable against the rental income.