allowable expenses and effect on CGT for 3 lodgers

[heebs]

hello All

I just wanted to ask...i had 3 lodgers in the yr 2011-2012...and am thinking of using the expenses route for tax declaration as my rental income was more than 4250...however please can someone tell me if not using the R-A-R scheme (rent a room) will expose me to CGT and considering I only rent to one lodger now onwards...will it be a significant loss if i not opt for the RAR scheme for one year...

Also please can someone let me know what allowable expenses are allowed to deduct for lodgers...could i for eg deduct 3/4 of my mortgage interest considering they had sole use of one bathroom and 3/4 of all common bills including council tax

sorry if this has been answered elsewhere..i did search and read HMRC pages but nothing really satisfied me in regards to CGT imlications...i mean...does using RAR shield you from CGT consequences or it makes no difference which route you take to declare lodger income.?

[pawncob]

If you search on here you'll find this:

http://www.taxationweb.co.uk/forum/thre ... it=lodgers and cgt

which probably answers all your questions.

[robbob]

Hello heebs

Without being certain i would have thought it very unlikely that the method that you use for calculating your taxable rental income would have any bearing on the way the capital gains tax is calculated at a later date.
I am certainly not aware of any CGT exemption that you would get simply down to the fact that you used the simplified scheme for working out annual rental income liable to tax. I.e. you will not be eligible for automatic exemption from CGT now simply because you use the RAR scheme (as far as i am aware !!).

Note if you swop from one method to another you must inform hmrc within the appropriate time limits that the change in method is being made.

[heebs]

thanks Rob

I have just had a convo with my acct ...looking at his figures that he returned to hmrc for me he has not applied RAR or any expenses...he says the rar doent apply to me as I had more than one lodger...this sounds like nonsense as I have lost the 4250 allowance and didnt get to offset mortgage interest and the rest either from 2008-2011 arggggghhhhhh

do you think if i contacted hmrc they would refund me?

[robbob]

There is nothing within the main guidance that says that you cannot your RAR if you have two lodgers and for the accountant not to claim RAR and then claim no % household expenses would seem pretty bizarre - possibly time to get a new accountant perhaps
Hmrc advise is here
https://www.gov.uk/rent-room-in-your-ho ... oom-scheme

[nikkisizer]

I have just had a convo with my acct ...looking at his figures that he returned to hmrc for me he has not applied RAR or any expenses...he says the rar doent apply to me as I had more than one lodger...this sounds like nonsense as I have lost the 4250 allowance and didnt get to offset mortgage interest and the rest either from 2008-2011 arggggghhhhhh

do you think if i contacted hmrc they would refund me?

Hello heebs,

Yes it probably is time to get a new Accountant in light of the above!

An amended tax return would need to be submitted to HMRC and if based on the revised calculations a tax refund was due then this would be repaid to you.

Happy to help if required so if you need any further assistance please do not hesitate to contact me.

[heebs]

hello Nikki

thanks for your reply....its amazing how much lack of knowledge is out there...even the tech chap on the hmrc helpline said he wasnt sure if rar applies to me...he had to read up..then finally agreed that RAR applies even if more than one lodger!...,however he said i cant get a refund of tax going back to 2008 as its too long ago.

does this sound right?....i dont trust the knowledge base in HMRC as they seem to have limited understanding and it all depends who you talk to

p.s where in London are you based?

[robbob]

however he said i cant get a refund of tax going back to 2008 as its too long ago.

Generally speaking (exceptions can be made but it isn't the norm) you can only go back to ye 5/4/2009 for correcting errors- the deadline for that year is 5/4/13

http://www.hmrc.gov.uk/sa/correct-repay.htm

You must make a claim within four years of the end of the tax year that you're claiming for. For example if you paid too much tax in the 2008-09 tax year, you must make a claim by 5 April 2013.If you don't make a claim within the time limit you'll miss out on any repayment due.

One added problem you can have is that if an election needs to be made (as mentioned in my initial post) within a certain time period to change methods you may be out of time in relation to making that change - that being the case you would probably not have the benefit of the full 4 years. This may not be material as either method used will be better than claiming nowt and declaring full income if that is where you are at now.- perhaps a complaint about your previous accountant to them their insurers or their professional body may help if they have advised wrongly in relation to out of time years.

[nikkisizer]

hello Nikki

thanks for your reply....its amazing how much lack of knowledge is out there...even the tech chap on the hmrc helpline said he wasnt sure if rar applies to me...he had to read up..then finally agreed that RAR applies even if more than one lodger!...,however he said i cant get a refund of tax going back to 2008 as its too long ago.

does this sound right?....i dont trust the knowledge base in HMRC as they seem to have limited understanding and it all depends who you talk to

p.s where in London are you based?

Hello heebs,

No that is not correct, you can go as far back as the 2008/09 tax year but the deadline to do this is 05 April 2013.

I will also send you a private message.

[PeterLondon]

I have looked on a number of forums where this question has been asked and in summary they say

"The Inland Revenue say that having more than one lodger means PPR would be resticted but they may be wrong"

I would like to rent out two rooms in my flat but will not incase I loose PPR , I mostly want to rent for company

'------------------------------------------------------
I wrote to my MP and explain the flat I now live I paid £1.5 million

It has two spare bedrooms if I rent out 2 of these theat represents about 40% of the flat by area.

If the house increases in value by 5% per annum and seel it in 14 years it would of doubled in value.

So that would be a tax bill of = 40% * 1.5 million * 28% = £168,000 .

They said that HMRC believe I would have a CGT liability of the above.

I would be paying tax at 45% on any rent received so I think I would be better off offering free accomdation or only renting one room

;-------------------------

Does anyone know if someone has sold up and HMRC gone to court for a similar case for someone renting two rooms?