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Worse off from renting two bedrooms rather than one?

sandymitchell
Posts: 2
Joined: Mon Mar 20, 2017 4:20 pm

Worse off from renting two bedrooms rather than one?

Postby sandymitchell » Mon Mar 20, 2017 4:30 pm

Hi everyone

I have an unusual situation but can anyone see a flaw in my maths?

I have a two bedroom property in London, worth say £1m. If I live in it and rent out one bedroom, these calcs apply:

Rent is 1100 per month
Annual rent is 13200
Estimated costs 0
Gross profit 13200
Rent a room relief 7500
Tax 2280
Net profit 10920

(Assuming tax at 40% in excess of rent a room)

HOWEVER, if I rent out two bedrooms I may incur CGT on half the gain which, at 3% property price growth (too low?), is more than the additional rent:

Rent is 1100 per room per month
Annual rent is 26400
Estimated costs -2000
Gross profit 24400
Tax 9760
Net profit 14640

Annual gain 30000
50% CGT @ 28% 4200

Net net profit 10440

-Ignoring lettings relief and 18 month rule.

I realise CGT isn't paid annually but it's still a worthy consideration. Am I missing something?

Thank you
Sandy

bd6759
Posts: 1977
Joined: Sat Feb 01, 2014 3:26 pm

Re: Worse off from renting two bedrooms rather than one?

Postby bd6759 » Mon Mar 20, 2017 10:14 pm

Why would you not claim rent a room relief in scenario 2?

sandymitchell
Posts: 2
Joined: Mon Mar 20, 2017 4:20 pm

Re: Worse off from renting two bedrooms rather than one?

Postby sandymitchell » Tue Mar 21, 2017 8:43 pm

bd6759 wrote:Why would you not claim rent a room relief in scenario 2?


I think you can only claim relief when you live in the property, which wouldn't happen if both rooms were let.

bd6759
Posts: 1977
Joined: Sat Feb 01, 2014 3:26 pm

Re: Worse off from renting two bedrooms rather than one?

Postby bd6759 » Wed Mar 22, 2017 8:39 am

sandymitchell wrote:
bd6759 wrote:Why would you not claim rent a room relief in scenario 2?


I think you can only claim relief when you live in the property, which wouldn't happen if both rooms were let.

Your post talks about renting bedrooms, not houses.

Using your figures you will be worse off if you rent your house. As well as the possible CGT, you will also have to spend money on alternative accommodation. Although, in the real world, the rent for a whole house is likely to me a lot more than twice the rent for a single bedroom.


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