The Mudcat Café TM
Thread #169021   Message #4086906
Posted By: Bonzo3legs
07-Jan-21 - 11:02 AM
Thread Name: BS: CGT trap for separating couples!
Subject: RE: BS: CGT trap for separating couples!
Something worth remembering about the Rent a Room Scheme:

From HMRC guidance note HS223 Rent a room scheme 2020:

If your gross receipts are more than £7,500 you can choose how you want to work out your tax.

Method A
You pay tax on your actual profit – your total receipts less any expenses and capital allowances.

Method B
You pay tax on your gross receipts over the Rent a Room limit – that is, your gross receipts minus £7,500, or £3,750. You cannot deduct any expenses or capital allowances if you choose this method.

So for example:
Chris rents out a room in his own home. The rent is £200 a week plus contributions to heating and light. His gross receipts for 6 April 2019 to 5 April 2020 are £10,600 (£10,400 rent plus £200 for the heating and light).

Chris has expenses of £9,000:

if Chris uses his actual profit, method A, he pays tax on £1,600 (£10,600 minus £9,000)

if Chris uses his gross receipts over the Rent a Room limit, method B, he pays tax on £3,100 (£10,600 minus £7,500)

It is better for Chris to pay tax on his actual profit, using method A. If Chris had previously asked to pay tax using method B, he will need to tell HMRC that he wants to change back to paying tax on his actual profit, method A.