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How many sources can qualify for rent a room relief?

A client has a large house. Her aged parent rents one room from her. A second room is let to a couple. Can the amounts from both lettings be aggregated under the rent a room relief scheme? I know that £4,250 is the maximum she can claim irrespective of the number of lettings. Would be very grateful for confirmation on this point.

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Should be fine...

You should be fine with an aggregate of both the sources....although, I always believed that it does not depend on the number of sources but the type of sources and the maximum one can claim is £2,125 individually or £4,250 collectively as a couple.

 

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Rent A Room Relief

Further info: it transpires the client's house has been divided into 3 studio flats (ie the flats have their own kitchens but the bathrooms are shared) and one self-contained flat. The client occupies the self-contained flat and lets out a room in that flat to her aged parent who pays a monthly rent which covers his food and sundry other costs, etc. The aged parent's rent includes council tax and utility bills.

One of the studio flats is occupied by her young son. He does not pay rent. Another studio is occupied by a couple who pay monthly rent to my client. Their rent is inclusive of council tax and utilities. They share the bathroom with my client's son. The third studio is used as additional living accommodation by my client.

The council tax and utility bills are levied on the property as a whole, not on the individual studio flats contained by the house. None of the studios has its own front entrance or its own address. The division of the property into studio flats is pretty permanent as each studio has its own functioning kitchen (cooker, sink, etc). The divisions into studio flats were not made by my client - she purchased the property in this state (it was used for social housing before she bought it as her family home).

My queries are:

1. Is my client permitted to aggregate her aged parent's rental income with the couple's rental income and claim Rent a Room Relief (£4,250) against the aggregate? I ask this because RAR relief  may not be permitted when a house has been divided into flats.

2. If the aggregation is not permitted because of the division into studio flats, is it permitted for her to claim RAR relief against her aged parent's rental income and to account for the rent received from the couple as property letting income in the normal way? In other words, can RAR relief be claimed on one rental stream, and the normal taxation rules be applied to the other rental stream, even though both streams emanate from the same property (albeit it being divided into separate units)?

The reason why RAR relief would be useful to claim against the aged parent's rent is because  no records have been kept for the significant amounts spent on his keep and hence these costs can not be deducted. Moreover, there is a risk that HMRC may deem  that a trade exists if my client is supplying other services from the rent. My client accepts that she must take the hit in terms of higher tax because of the absence of records. I am reluctant to ask HMRC because experience has taught me that their advice is often poor and maybe biased.

 

 

 

 

 

 

 

 

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I'm confused, one minute it is  her aged parent" next minute "her aged parent's" Can you clarify. Are these rents at open market value. Regards Peter

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RAR Relief

Aged parent. Singular. 

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Open market values

The rent received from the couple is at open market value. The rent received from the aged parent is significantly below his former care home fees but is slightly above an open market rent. This is because other costs are included in his rent. 

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Apostrophe's

TaxationPete wrote:

I'm confused, one minute it is  her aged parent" next minute "her aged parent's" Can you clarify.

See here:

http://www.accountingweb.co.uk/grou-thread/write-rant#comment-520802

 

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See the "Write a rant" thread for correct use of the apostrophe!

TaxationPete wrote:

I'm confused, one minute it is  her aged parent" next minute "her aged parent's" Can you clarify. Are these rents at open market value. Regards Peter

Both the above are singular, if it were plural it would be "aged parents' "- :o)

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Is this really a rent received

First of all, if your parent lives with you you may describe the money received as a rent but in reality it is usually just a contribution towards their costs, called a rent to protect their dignity. The Revenue do recognise the difference between letting children/parents stay with you and a real lodger. This is specified for CGT purposes.

http://www.hmrc.gov.uk/manuals/cgmanual/CG64700.htm 

and while not mentioned in RAR terms I think would work equally effectively.

 Secondly, if she had purchased separate flats I do not think the letting to the couple would qualify for RAR relief. However, the description you have given sounds relatively easy to convert back into a single residence. Just having kitchen facilities in a room when sharing everything else means structural alterations would not sound applicable.She is already using the rest of the house as one residence really.

You don't mention if the studio flats are furnished. If you are to claim RAR relief all of the property has to be furnished by you. 

I would personally not count the parents contribution as rent, and claim rent a room (if furnished) for the couples payments as and when it was the most tax effective method. 

Marion

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Thanks Marion, most helpful

Thanks Marion. Your advice is most helpful and will be greatly welcomed by my client! The let accommodation has been fully and well furnished by my client so it looks as if RAR relief may be appropriate.

Once again, many thanks.

Stephen

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Are you sure about your figures?

You seem to suggest in your first post that the combined rent from the parent and the couple is less than £4,250 per year.

Are you sure the rent paid by the couple is at a market rate?

 

 

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@ Roland

The combined rent is well above £4,250. Nevertheless, the £4,250 is a significant allowance and probably larger than the actual deductible expenditure because RAR relieft avoids time and area apportionments. I did not mean to suggest that the aggregate of the rents was less than £4,250.

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BKD, I copied and pasted it from the original post. Regards Peter

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BKD :o)

You beat me to it - I hadn't refreshed and was stuck in a time warp - lol

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