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Renting own house out

I've got a client that is letting their house out for a couple of months while they have a long holiday. They've apparently spent a fair bit making it suitable for renting - albeit in the 2010/11 tax year while the rental hasn't happened yet. To be honest I think (knowing the client) they've probably done some decorating or whatever in the normal course of life and have then thought they can save some tax by claiming its for rental purposes! But I'd rather not tell them they're crooks and would prefer some facts :)

And am I right in thinking that the lower-rate taxpayer can only claim all the rental if they own the whole house, otherwise it gets split 50/50?

Any help much appreciated, I detest clients who try to avoid tax through downright lies and this one is big on trying it on.....

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26th Apr 2011 22:05

True

"I detest clients who try to avoid tax through downright lies and this one is big on trying it on....."

I know what you mean. Some give a certain explanation to ensure they can reduce a specific tax and then when you explain how that will increase another tax they come up with a contrary explanation.

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Rent a room

You can advise them to claim rent a room relief so the income will presumably be covered by the £4,250 exemption.

I recently read somewhere that it doesnt matter if the owner of the house is actually occupying the property or not, its the fact its their PPR that matters.

Thats the simplest and most tax efficient way to do it short term i would say.

Any expenditure incurred to put the property into a fit state for letting would be capital anyway and I think they would struggle to convince the taxman all the money they spent "doing up the house" was so they could rent it for a whole 2 months!  Disallowable I would think!

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27th Apr 2011 10:33

Rent a Room

They are not renting out a room they are renting out the house. To qualify for Rent a Room the owner has to be livinging in the property when the renting commences, the Rent a Room allowance last for the year if the owner happens to leave the property.

The expenses are, as you say most likely capital in nature not revenue. As the property is only being rented out for two months then a disposal at a later date would not have any significant apportioned CG Liability. Regards Peter

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Sorry, don't agree Pete

S784 of ITTOI says nothing about it being restricted to renting out only parts of your home.

It only says that the property must be your "only or main residence" at some time during the period you rent it.

This doesnt mean you have to be living it while rented, just that you haven't taken up permanent residence elsewhere.

www.legislation.gov.uk/ukpga/2005/5/section/786

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27th Apr 2011 16:55

Not PPR

So how can the house be your "only or main residence" if you are not living there at the time?

The legislation doesn't say PPR.

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Holiday?

It would still be your only or main residence if you were on holiday?

You wouldn't be treating the hotel as your main residence for those 2 months would you?

It obviously only applies short term, I could see the problem if you went to work down south for 6 months and rented somewhere for that time, however - being on holiday for a couple of months does not represent a change in you only or main residence.

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28th Apr 2011 12:30

I take your point about holidays

but I still think it's against the spirit of "rent a room" and I'm not too sure of how it stands legally.

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Spirit not important

I hear what you are saying, but this is not about the spirit of it.  It is about interpreting the legislation to give a favourable tax treatment.

We have checked this out and believe it is ok.

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28th Apr 2011 14:03

I know, that's why I referred to the legal position.

In what way did you check it out?

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By Flash Gordon
28th Apr 2011 14:10

Rent a room

Cheers for the input so far folks. I've had a scout around on Rent a Room but can't find anything that clarifies either way. It seems like no-one thought about this scenario. They mention renting a part out (as in a whole floor) but not the whole thing. Though HMRC's website is not exactly good for finding info easily. I'm working on it being taxable completely (am sooooooo gutted for the client!) but it would be good to have some definitive rules if anyone can find some legislation.....

Thanks again....

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28th Apr 2011 14:49

Why not phone HMRC?

And when you get through ask them. Do it three times and compare the answers.

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28th Apr 2011 15:52

Deemed residence and actual residence are not the same. The requirement is that the owner actually lives in the property at some time during the period they claim RaR. This is not the case in this scenario. Regards Peter

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By Flash Gordon
28th Apr 2011 15:58

Phone HMRC

And that is why I didn't ring them - I'd have better chances of winning the lottery!!!

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Just one of the articles I have found

www.moneyweek.com/personal-finance/tax/tax-advice-rent-out-a-room-for-the-olympics-53331

We have also spoken with HMRC, that is how we have checked it out.

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04th May 2011 09:00

OK

It looks like if the property is your only and main residence both before and after the rent then RARR applies as long as it's not for an extended period. I'd guess that would be up to about 6 months although the individual scenario would be what's relevant.

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Agreed

It does seem to be something that has slipped under the radar but it was brought to our attention because of the olympics coming up.

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