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Taxman Issues Rental Warning

"With the festival and summer sporting seasons getting into full swing, the thought of making a little extra money by renting out your house or a part of it might seem like an attractive idea, but be warned," says William Meakin of Grant Saw Solicitors. "HM Revenue and Customs (HMRC) have issued a warning to homeowners who are seeking to make a little extra income by renting rooms out for short periods to those seeking accommodation whilst attending such events. This income is taxable and the tax man will be looking out for taxpayers who receive rental income but do not declare it on their tax returns."

Says William Meakin "Under UK tax law, doing anything for the purpose of making a profit is a trade and profits of a trade are taxable, so letting out a room in your house during an event is creating taxable income to the extent that the income derived exceeds the cost (mortgage interest on a residential mortgage is regrettably not a permitted deduction)."

Coming under the scrutiny of HMRC will normally lead to a letter indicating that they believe that a full return of income may not have been made and inviting the taxpayer to inform them of any omitted income. The specific omission is not mentioned, often leaving the taxpayer bewildered because they might not realise that the money they have received is taxable.

However, where the gross income from letting furnished rooms in your own property does not exceed £4,250 in a tax year (6 April to 5 April), the 'Rent a Room' exemption can be claimed.

It is also often not appreciated that in most cases having a simple rental agreement prepared (the cost of which will be tax-deductible) is highly advisable. Also, the impact on your insurance arrangements needs to be considered. Renting out a house or part of your house, even for a short period, may invalidate your insurance cover on the property and/or its contents during the period of the rental. If the property is mortgaged, having tenants may be a breach of the mortgage terms. Lastly, there is a plethora of other law which applies when a property is let and failing to comply with it could be an expensive mistake.

For more information visit our conveyancing department >

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