Having a paying lodger

[d000hg]

Assuming one does this above board - signed contracts and everything - what would be the best way to arrange it financially? Is it the same as renting a property out?

In our case I expect to earn enough that I can hit the upper tax threshold each year, but equally I could deliberately take less in dividends to accommodate other income sources, and leave more cash in the company.

My wife is a teacher earning ~£31k, and we don't income share or anything like that. Would it make sense to have rental/lodging income paid to me, or to the wife, or something else? It seems that my wife has a big chunk of lower-rate tax allowance she could use up, but then she'd presumably have to stop being PAYE.

[eek]

Assuming one does this above board - signed contracts and everything - what would be the best way to arrange it financially? Is it the same as renting a property out?

In our case I expect to earn enough that I can hit the upper tax threshold each year, but equally I could deliberately take less in dividends to accommodate other income sources, and leave more cash in the company.

My wife is a teacher earning ~£31k, and we don't income share or anything like that. Would it make sense to have rental/lodging income paid to me, or to the wife, or something else? It seems that my wife has a big chunk of lower-rate tax allowance she could use up, but then she'd presumably have to stop being PAYE.

Assuming its less than £4250 its tax free.

The £4250 limit is for the house rather than per person though.

And round our neck of the woods you'll be hard pushed to get that on a room.

[d000hg]

Well that's rather unexpected.

£4250 works out as £81pw which is within the top end here, but on our street I do know students are paying £75-77pw in a shared house and we'd expect to be less than that.

Thanks!

[Nixon Williams]

Although upto £4,250 per annum is tax free, you will need to ensure that you declare the rental income on your tax return and then also claim the relief, so that you are not taxed on it.

If the house is jointly owned with your partner/spouse, then the income would normally be split 50:50 and so would the relief, as the £4,250 is per property, not per lodger etc.

[tarbera]

Quick question

Sounds like your not short of cash, why would you want a stranger roaming about your house ?

Just wondering encase I'm missing something or is lodger really hot

[d000hg]

Why not... We'd only have someone we know well.

[NimbleJackAccounting]

You can split rent differently between spouses

Rental income is normally taxed 50:50 when husband and wife jointly own property, but you can change this.

How do you do this?

Well between a husband and wife you can have have a simple legal document called a declaration of trust to alter the "beneficial ownership" to say 90% and 10%. Then you simply fill in HMRC Form 17 to let them know that you own property in unequal shares and therefore they should tax in such ratio.

Any typical high street solicitor can do the declaration of trust document for you. Oh and there will be no capital gains on the transfer between husband and wife.

I realise this may be purely academic as rent a room relief will cover the income in any case - but hope it helps.

[Nixon Williams]

Rental income is normally taxed 50:50 when husband and wife jointly own property, but you can change this.

How do you do this?

Well between a husband and wife you can have have a simple legal document called a declaration of trust to alter the "beneficial ownership" to say 90% and 10%. Then you simply fill in HMRC Form 17 to let them know that you own property in unequal shares and therefore they should tax in such ratio.

Any typical high street solicitor can do the declaration of trust document for you. Oh and there will be no capital gains on the transfer between husband and wife.

I realise this may be purely academic as rent a room relief will cover the income in any case - but hope it helps.

I would advise anybody who is considering this to take some advice before taking any action.

Spliting the ownership of the home needs serious consideration, especially if the initial aim is to split a small amount of rental income from a lodger!

Alan

[SandyD]

Assuming its less than £4250 its tax free.

The £4250 limit is for the house rather than per person though.

And round our neck of the woods you'll be hard pushed to get that on a room.

I think this applies only if one doesn't have other rented properties.

[SandyD]

I have a couple of lodgers, the income helps when on the bench, at least I don't have to dip into the war chest. The income is also assessed against expenses, e.g. furniture/ agents fees etc etc