Many people decide to take in a lodger to fill a spare room, gain some extra income, and have a little more company around the house. The rent a room relief scheme has come as a welcome change for those looking to rent out their spare rooms to lodgers. But not just anyone can utilise this scheme, and there are things you must consider before taking advantage of it. Read on to find out more.
How Does This Impact Capital Gains Tax?
As we have said, taking in a lodger can have great financial advantages. However, it can pose a significant problem for Capital Gains Tax (CGT). CGT relief only applies to the specific area of the home used for a main residence. Yet there are some exceptions to this. The exceptions exist when the owner of the property has shared the house with one lodger at one time or if you have had live-in staff members.
Rent A Room Scheme Capital Gains Tax
So, how does the aforementioned rule impact the rent a room Capital Gains Tax? Essentially, you need to follow the rule to get the most CGT relief. You may house a single lodger to be eligible for PRR relief and lettings relief. This applies to your property in its entirety.
Rent A Room Scheme Tax-Free Allowance
Under the rent a room scheme, you are allowed to have a rent a room scheme tax free allowance of up to £7500. If you earn more than this from lodgers, then you will need to pay tax on the overall amount.
Caveats To This
Because this rule applies to one lodger at one time, you would be able to take in three lodgers over a three year period but you must only have a single lodger living in your home at once. If you house two or more lodgers at once, this becomes a lot more difficult. As a homeowner, you must be careful to abide by these restrictions in order to make the most of your lodgers financially, and ensure that you are also eligible for the CGT relief on offer.
If you are considering taking in a lodger and are not sure about where this leaves you in regards to your insurance, get in touch with Crowthorne Insurance. We can help you with a range of queries and provide you with the best insurance for your circumstances. Let us know how we can best support you.
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