I think it is Bath Building Society that will offer mortgages where you can use the income from lodgers as part of your mortgage application with them.
Whist I think that having a written agreement is a good idea to prevent misunderstandings later, it is not strictly necessary as you can evict a lodger simply by telling them to leave, as they are not tenants and so not protected by those rights.
In the following scenario: Charlies has property A where he lives with a lodger, and property B that he rents out to tenants 1) Can Charlie claim RAR relief? Especially if expenses in both properties amounted to less than £7500? 2) If Charlie earns under £7500 for property A and, for example, £8000 for property B can she/he declare the income only from property B? Or does he/she need to declare both because of the joined income from the two properties?
Thanks for such as clear explainer. Just to clarify, for method A where you can expenses include the entire portion of utility bills and council tax? and would it include things like a new kettle or washing machine. I understand that we can also use this for air bnb - so temporary lodgers?
What if you are working and you are paying income tax as you earn over the 12500 allowance Is this 7500 tax free rental allowance separate to your income tax allowance Thank you for your help
Hi Dherm, Thanks for the compliment, glad you enjoyed the video and Yes, any repairs can be allowable to be expensed. *According to the Government website allowable expenses include:* - Insurance - Maintenance - Repairs (but not improvements) - Utility bills www.gov.uk/rent-room-in-your-home/rent-bills-and-tax *For a better idea, check out **Which.com**, they have a more extensive breakdown:* - Water rates, council tax, gas and electricity - Landlord insurance - Costs of services, including the wages of gardeners and cleaners (as part of the rental agreement) - Letting agents' fees - Legal fees for lets of a year or less, or for renewing a lease of less than 50 years - Accountant’s fees - Rents, ground rents and service charges [Not sure how this works to be honest] - Direct costs such as phone calls, stationery and advertising for new tenants www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/allowable-expenses-and-allowances-atdn93l9wyqp
Good question. If the income exceed the allowance you will need to file this as part of your tax return. And this will charged at the appropriate income tax rate. Lets assume with this additional income (assuming you have a job as your main income), and you are still a basic rate tax payer then you will be charged at the Basic Rate of 20% (£2,500 x 0.2 = £500). The logic applies, if you are in the Higher Tax Bands
You have a choice. A. You deduct £7,500 from the £10,000 and this £2,500 is added to your other income. This would be liable to Income Tax. Or B. You deduct all the relevant expenses e.g. insurance, electricity bills etc and declare this. This would be liable to income tax. You can swap between methods from one fiscal year to another. You can calculate both and declare the one that suits you best.
I should inform the council And read mortgage agreement to confirm that the company allows it … and then I can ask the lodger to pay that amount to my bank account. This is what I understand.
Asking the lodger to leave will terminate your agreement. And thus no further rental income will come in. Not sure if this was the answer you were looking for. Please let me know if I have misunderstood your question thanks.
I am living in a council home that I rent from the council. I am currently receiving universal credit. My Is it still possible to opt in to the scheme?
Hi @elenaneedham7600 , not sure I fully understand your question. If the room is to let in your property, then you are eligible for the Rent a Room Scheme
If I'm taking a break from work and travelling around the country/or abroad (and say come back every 4-5 weeks), am I allowed to have 2 lodgers in a 3 bed house?
Yes this should be allowed. Just as long as you are in compliance with the eligibility criteria of found here: www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2020#:~:text=The%20Rent%20a%20Room%20Scheme%20allows%20owner%20occupiers%20and%20tenants,Room%20limit%20is%20%C2%A37%2C500. You can't use it if you are living abroad. But 4-5 weeks of travelling doesn't surmount to that, so this shouldn't be a problem.
Hi Shqip, So if you earn under the allowance that this scheme allows you, then you don't need to provide any evidence at all. However, I would suggest to keep a record for good book keeping just in case anything happens. For what types of records to keep, check the "Records to Keep Section Here": www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
If the income is eligible under the scheme. Then it's classed as a separate tax allowance. You can be earning £60k for example and still be allowed to claim £7,500 tax free
If I receive £7500 per year in rent from my lodger and another £1000 per year dedicated to expenses from them e.g utility bills, am I therefore eligible to pay any tax? Also does my long-term girlfriend count as a lodger? And similarly as they are my partner could they just transfer / gift with no obligation?
Hi There, Apologies for the delay in response. I was just checking the fine print and the scheme is allowed to be used if you rent out your one-bed while you are living in your living room. Just as long as the following eligibility criteria still applys, then there shouldn't be an issue :) (www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2020) *When you can use the Rent a Room Scheme * You can use the scheme if: - you let a furnished room to a lodger - your letting activity amounts to a trade, for example, if you: run a guest house; run a bed and breakfast business provide services, such as meals and cleaning *When you cannot use the Rent a Room Scheme* You cannot use the scheme if the accommodation is: - not part of your main home when you let it - not furnished - used as an office or for any business - you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities - in your UK home and is let while you live abroad
Absolutely no problem. So long as the lodger is provided a room with furniture, where you sleep in the house elsewhere is not an issue. I do not recommend the shed as it gets cold in winter!
Yes this is possible. But remember the £7,500 is just one method of allowance (this is the Rent a Room Scheme). Otherwise your can minus your expenses from your revenue and be taxed accordingly. (Not the Rent a Room Scheme). If your expenses exceed the £7,500 allowance then it makes sense to go with option 2, otherwise stick with the £7,500 allowance. According to the Government website allowable expenses include: - Insurance - Maintenance - Repairs (but not improvements) - Utility bills www.gov.uk/rent-room-in-your-home/rent-bills-and-tax
@@FinancialMadness If I live with one lodger and utility bills come to £1000 for the year, can I deduct the full £1000 as an expense? Or can I only deduct half of the utility expenses because I am sharing the cost with the lodger, and only half of it is technically an expense against the income?
@@harry.robert You can only deduct what they are being charged. If you are paying for half of the £1000, that portion cannot be used as an expense. Also, please note that if your total expenses are less than £7,500, you should go with the Rent a Room Scheme instead from a tax perspective.
@@FinancialMadness Is it possible to just charge the lodgers a fixed rent only which does not exceed the tax free limit example £500 pm and I as the homeowner cover all the expenses? This makes things less complicated
does how much my job earn come into it or is just how much i earn from renting?, so if i rent out at £625 and earn £7,500, how much i earn would still mean i get £7500 tax free?
Thanks for the question. The Rent a Rooms Scheme has no dependency on how much you earn from other income streams As long as your rental income adheres to the eligibility criteria then you will be fine :)
Hi thanks for the response What if I rent out 2 rooms, let's say for £5000 each room which would be 10,000 income for the 2 rooms in a year would it be tax free as each room income was less than £7500 or because the overall income for the 2 rooms is over 7,500 would i need to complete a tax return?
Yes, it is not the number of lodgers that matters, but whether income from lodgers is above or below £7,500 per annum in total. Nb It is NOT £7,500 per lodger, but a TOTAL of £7,500. So, if you have two lodgers paying the homeowner £4,000 each in a tax year, then this totals £8,000 and would have to be declared.
I think it is Bath Building Society that will offer mortgages where you can use the income from lodgers as part of your mortgage application with them.
Whist I think that having a written agreement is a good idea to prevent misunderstandings later, it is not strictly necessary as you can evict a lodger simply by telling them to leave, as they are not tenants and so not protected by those rights.
Great video! Cheers mate. This helped me a lot. Very straight forward.
Such a helpful clearly explained video. Thank you
Thank you. I am glad you found it helpful :)
In the following scenario: Charlies has property A where he lives with a lodger, and property B that he rents out to tenants 1) Can Charlie claim RAR relief? Especially if expenses in both properties amounted to less than £7500? 2) If Charlie earns under £7500 for property A and, for example, £8000 for property B can she/he declare the income only from property B? Or does he/she need to declare both because of the joined income from the two properties?
Great video mate! You make me want to have lodgers, cheers!
Thank you Trever!
Great video. Looking good :)
Thanks mate! Glad you enjoyed :)
Thanks for such as clear explainer. Just to clarify, for method A where you can expenses include the entire portion of utility bills and council tax? and would it include things like a new kettle or washing machine. I understand that we can also use this for air bnb - so temporary lodgers?
What if you are working and you are paying income tax as you earn over the 12500 allowance
Is this 7500 tax free rental allowance separate to your income tax allowance
Thank you for your help
Hi @aproductionz9390,
Yes this is a separate allowance from the the £12,500 Personal Allowance Everyone gets.
I hope that clears things up.
Thanks
great video!, What kind of expenses are allowable?....could you claim expenses for repairing lighting, replacing furniture or even repairing flooring?
Hi Dherm,
Thanks for the compliment, glad you enjoyed the video and Yes, any repairs can be allowable to be expensed.
*According to the Government website allowable expenses include:*
- Insurance
- Maintenance
- Repairs (but not improvements)
- Utility bills
www.gov.uk/rent-room-in-your-home/rent-bills-and-tax
*For a better idea, check out **Which.com**, they have a more extensive breakdown:*
- Water rates, council tax, gas and electricity
- Landlord insurance
- Costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
- Letting agents' fees
- Legal fees for lets of a year or less, or for renewing a lease of less than 50 years
- Accountant’s fees
- Rents, ground rents and service charges [Not sure how this works to be honest]
- Direct costs such as phone calls, stationery and advertising for new tenants
www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/allowable-expenses-and-allowances-atdn93l9wyqp
How much tax do you have to pay if it's over £7500? Let's says £10,000 for the year, so £2500 extra, what is the tax on that?
Good question. If the income exceed the allowance you will need to file this as part of your tax return. And this will charged at the appropriate income tax rate. Lets assume with this additional income (assuming you have a job as your main income), and you are still a basic rate tax payer then you will be charged at the Basic Rate of 20% (£2,500 x 0.2 = £500). The logic applies, if you are in the Higher Tax Bands
You have a choice.
A. You deduct £7,500 from the £10,000 and this £2,500 is added to your other income. This would be liable to Income Tax.
Or
B. You deduct all the relevant expenses e.g. insurance, electricity bills etc and declare this. This would be liable to income tax.
You can swap between methods from one fiscal year to another.
You can calculate both and declare the one that suits you best.
Thanks for the info. Any lodger license required or need to register to the county before starting the “business”? Thanks!
Not in the UK.
I should inform the council
And read mortgage agreement to confirm that the company allows it … and then I can ask the lodger to pay that amount to my bank account. This is what I understand.
What does the council have to do with it? Are you in a property rented from the council?
Is this still a thing?
What happens if I ask the lodger to leave?
Asking the lodger to leave will terminate your agreement. And thus no further rental income will come in.
Not sure if this was the answer you were looking for. Please let me know if I have misunderstood your question thanks.
I am living in a council home that I rent from the council. I am currently receiving universal credit. My Is it still possible to opt in to the scheme?
How the scheme work if I have a room to let and a self contained flat in my house where I permanently live?
Hi @elenaneedham7600 , not sure I fully understand your question. If the room is to let in your property, then you are eligible for the Rent a Room Scheme
If I'm taking a break from work and travelling around the country/or abroad (and say come back every 4-5 weeks), am I allowed to have 2 lodgers in a 3 bed house?
Yes this should be allowed. Just as long as you are in compliance with the eligibility criteria of found here: www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2020#:~:text=The%20Rent%20a%20Room%20Scheme%20allows%20owner%20occupiers%20and%20tenants,Room%20limit%20is%20%C2%A37%2C500.
You can't use it if you are living abroad. But 4-5 weeks of travelling doesn't surmount to that, so this shouldn't be a problem.
What evidence do I need to provide to HMRC because they stated that I been renting out than scheme, council tax is on my name
Hi Shqip,
So if you earn under the allowance that this scheme allows you, then you don't need to provide any evidence at all. However, I would suggest to keep a record for good book keeping just in case anything happens.
For what types of records to keep, check the "Records to Keep Section Here":
www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
None. Just declare it.
Is the 7.500 tax free income still ok if you earn 12.000 a year from pensions or light work? Or does that changes?
If the income is eligible under the scheme. Then it's classed as a separate tax allowance. You can be earning £60k for example and still be allowed to claim £7,500 tax free
@@FinancialMadness thanks!
The £7,500 is a separate allowance in addition to your other allowances.
If I receive £7500 per year in rent from my lodger and another £1000 per year dedicated to expenses from them e.g utility bills, am I therefore eligible to pay any tax? Also does my long-term girlfriend count as a lodger? And similarly as they are my partner could they just transfer / gift with no obligation?
You are receiving £8,500 under the Rent A Room scheme. So, you deduct £7,500 and declare £1,000.
If your girlfriend has her own bedroom and pays you rent, then it sounds to me like a lodger. If you share a bedroom, she is not a lodger.
I have a flat I would like rent out the room and stay on the living room would this scheme work for me ?
Hi There,
Apologies for the delay in response. I was just checking the fine print and the scheme is allowed to be used if you rent out your one-bed while you are living in your living room.
Just as long as the following eligibility criteria still applys, then there shouldn't be an issue :)
(www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet/hs223-rent-a-room-scheme-2020)
*When you can use the Rent a Room Scheme *
You can use the scheme if:
- you let a furnished room to a lodger
- your letting activity amounts to a trade, for example, if you: run a guest house; run a bed and breakfast business provide services, such as meals and cleaning
*When you cannot use the Rent a Room Scheme*
You cannot use the scheme if the accommodation is:
- not part of your main home when you let it
- not furnished
- used as an office or for any business - you can use the scheme if your lodger works in your home in the evening or at weekends or is a student who is provided with study facilities
- in your UK home and is let while you live abroad
Absolutely no problem. So long as the lodger is provided a room with furniture, where you sleep in the house elsewhere is not an issue. I do not recommend the shed as it gets cold in winter!
If you split utility bills like electric and council tax with lodger, does that also count as part of your £7500 allowance?
Yes this is possible. But remember the £7,500 is just one method of allowance (this is the Rent a Room Scheme). Otherwise your can minus your expenses from your revenue and be taxed accordingly. (Not the Rent a Room Scheme).
If your expenses exceed the £7,500 allowance then it makes sense to go with option 2, otherwise stick with the £7,500 allowance.
According to the Government website allowable expenses include:
- Insurance
- Maintenance
- Repairs (but not improvements)
- Utility bills
www.gov.uk/rent-room-in-your-home/rent-bills-and-tax
@@FinancialMadness
If I live with one lodger and utility bills come to £1000 for the year, can I deduct the full £1000 as an expense? Or can I only deduct half of the utility expenses because I am sharing the cost with the lodger, and only half of it is technically an expense against the income?
@@harry.robert You can only deduct what they are being charged. If you are paying for half of the £1000, that portion cannot be used as an expense.
Also, please note that if your total expenses are less than £7,500, you should go with the Rent a Room Scheme instead from a tax perspective.
@@FinancialMadness Is it possible to just charge the lodgers a fixed rent only which does not exceed the tax free limit example £500 pm and I as the homeowner cover all the expenses? This makes things less complicated
does how much my job earn come into it or is just how much i earn from renting?, so if i rent out at £625 and earn £7,500, how much i earn would still mean i get £7500 tax free?
Thanks for the question. The Rent a Rooms Scheme has no dependency on how much you earn from other income streams
As long as your rental income adheres to the eligibility criteria then you will be fine :)
Hi thanks for the response
What if I rent out 2 rooms, let's say for £5000 each room which would be 10,000 income for the 2 rooms in a year would it be tax free as each room income was less than £7500 or because the overall income for the 2 rooms is over 7,500 would i need to complete a tax return?
Is it £7500 allowance per room? If I have 2 room is it £7500 for each room?
No. The allowance is for the entire household
As correctly stated, it is NOT per room and neither per person...it is a total for the whole of your house.
Thanks, I’ll watch again when I actually buy the house 🤗
Are you allowed more than 1 lodger in the rent a room scheme?
Yes, it is not the number of lodgers that matters, but whether income from lodgers is above or below £7,500 per annum in total.
Nb It is NOT £7,500 per lodger, but a TOTAL of £7,500.
So, if you have two lodgers paying the homeowner £4,000 each in a tax year, then this totals £8,000 and would have to be declared.