Rent a room scheme query.

Rent a room scheme query.

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Hello:

If anyone has the time I would  like an opinion on claiming mortgage interest relief on a rent a room scheme.  My daughter has a 2 bedroom flat and advertises a room to let via a well known website. If she claims relief for mortgage interest paid (outside the rent a room scheme) I would suggest to her that she claims one half of the interest as a deduction on the basis that the room and other facilities represent one half of the flat and that when the room is empty it is advertised and still available to rent, The other option is that the deduction is reduced by the number of weeks she isn't able to let it. Am I being too optamistic in the first  suggestion and would HMRC allow such a deduction or does anyone have any other comments.

Thank you for your time..

Replies (4)

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By MattG
30th Jan 2015 15:30

Rent a Room or not?

Just to be clear, the term "Rent a Room Scheme"  refers to the specific scheme allowing furnished accommodation to be let by a live-in landlord up to an amount of £4250 tax free each year, with anything in excess of this figure being taxable.

It sounds like you are talking about your daughter opting out of this automatic exemption and claiming actual costs instead (note using the Rent a Room scheme)  - have either of you checked to see whether the costs including 50% of household costs would be more than the £4250?

 

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By brian-scholar
30th Jan 2015 15:44

Thanks Matt

It's your second paragraph which is applicable. She needs to opt out of the scheme  cos her rental income is over the threshold. I thought you either included the total rental income less £4,250 and paid tax on that or included all income and expenses and paid tax on the resultant profit. She won't know which is best until she knows what she can deduct from the rent.

Is that not right?

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By J T
30th Jan 2015 22:40

Opt out or opt in

Hi Brian,

My sister in law asked the same question tonight and the advice is at https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

I am not an expert (deal with company affairs exclusively) but it states there are two ways within the scheme. However the website says (https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme)

You can choose not to opt into the scheme and instead record your income and expenses on the property pages of your tax return.

You can then opt into the scheme and claim your tax-free allowance. You do this on your tax return.

Given the date my advice would be the same as I gave her. Pay it based on the total receipts less £4,250. Then work it out later for next year. In her case it was probable the £4,250 is the winner and she hadn't got receipts etc anyway. Unless you have an expensive loan and bills then 50% of the costs shouldn't exceed £4k anyway.

As far as deducting mortgage interest under Option A it is not referred to in the guidance. It would clearly be full deduction on an investment property. Probably need an accountant with relative experience on that one.

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By brian-scholar
31st Jan 2015 13:21

Thank you JT.

It was sort of why I was asking on this forum if anyone had experience of claiming mortgage interest in this scenario as it's a bit different from normal full time rental income.

 

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