Sam,Thanks reply.I have spoken to HMRC on several occasions, but want a second opinion, and preferably direction to something written, such as a manual - so far HMRC have only given a verbal reply and cant point me to any direct reference material, I have looked through some of the PIM, CG64700-64750 and BIM47805-47820 manuals as best I can written confirmation - but cant find a definitive as to what areas of a dwelling house can be claimed usage.
I have a semi detached house, it is my primary residence, I am the live in landlord.I have been letting rooms in my house 10 years.I have had 4 lodgers, in 4 of the rooms last 5 years and had 3 lodgers in 3 of the rooms 5 previous years - these areas have been used exclusively as lettings.When I started letting, 10 years ago I was advised verbally by HMRC to use a fractional calculation (ie 1/4 or 1/5) - but as I have looked closer I feel this might not be correct (reasonable).
My lodgers have a 'license to occupy' rather than a AST tenancy.I have been self employed up till 31/03/2013, from 01/04/2013 I incorporated my business into a Ltd company.
In 2010 I constructed a workshop (approx 30 sq mt) in my back garden and started to use it self employment activities, it also has my gym equipment and drum kit in there, I also sleep in there at night - so the work shop is not exclusively used purposes.In 2010 I also converted a run down garage adjacent to my workshop so it could be used to store some of my stock, clients work, and jobs in progress - I also store a small number of non business items in there such as tools, bicycle etc.My garden is less than half a hectare.I have measured all internal rooms in the house, workshop and store room. When using actual room size as opposed to a fractional calculation Usage - I arrive at quite different figures apportionment, and I consider floor area the fairest as it is more accurate. At present using what I've been told by HMRC - with the workshop included - 50% of the floor area is Private Usage, but going the fractional way it is 1/5 (myself and 4 tenants) which is only 20%, a big difference. Up till 2012 I have been using the fractional basis.To calculate the Private Usage Adjustment - when working out the amount of expenses I can claim on my Tax Return, I am trying to establish what rooms can be included as Private Usage - calls to HMRC inform me that shared areas of the hall, landing and stairs cannot be included as Private Usage, and neither can the bathroom, but the kitchen can be included. My workshop can also be included as 'Private Usage', as its seen as part of my home, would the same go 'store room' then too ?. Again this is all verbal from HMRC.Would HMRC would be happy with me claiming the workshop as part of my private usage, I question how a bathroom, which is plainly a shared area tenants - not be included, but my workshop - which is not shared can be included.I also want to know the CGT implications, as this year I will develop my property and split the house into two flats, obviously with the Private Usage Adjustment calculation, I assume this implys how the apportionment Residence Relief is calculated (ie 50% Private Use) - and that figure will have an effect on the amount of CGT paid, so want to get that right, I also want to confirm there will be no CGT on my workshop - no part of it is used exclusively .I will need help calculating that figure - CG65271 gives examples, but need some help at this stage just to get an idea of my forthcoming liability.Thanks
Thanks swift reply."and any room used exclusively are excluded" - HMRC told me the opposite - any rooms used exclusively by the lodgers formed the area of 'gain' - and I assume rental income, and any rooms I share or use - for 'Private Use'Ok, so as its my primary residence, despite most of it being let out - its not seen as a business ?Yes 50% floor area - also seemed wrong, unless of course you include my workshop - as that is part of my home (I sleep, work out and practice my drums in it) - although I also happen to use it as a workshop business, a bone of contention here.
So far I have not included my workshop or store room in calculations to date.I produce large graphics events, in my workshop - it is one large area (30 sq mts in size) I have a 60" printer to produce them on, a large laminator to mount and finish them, a large 4x8' bench, 3 desks with PC workstations on, there is also some stock in there with cabinets on the walls and self standing shelves - all with work related books, files and small tools needed business. Roughly in the middle of the floor I have my drum kit and Weider Fitness Frame, I also have a mattress I pull down from the wall - and sleep on that at night. It has electric heating and light fed from the main consumer unit in the house, it has no water or plumbing installed (this and its size makes it an 'exempt outbuilding' - from a local council Planning and Building Control perspective)The store room is walked through to get to the workshop, this is an old concrete garage - that was derelict, it has had doors fitted at each end -and the inside panelled out and insulated, its is heated and light - again by electricity from the consumer unit in the house.Is this part of my home ??I have never made any business claim expenses relating to my use of the workshop or storage area as a business through the Self Employment pages of my self assessment Tax Return, nor with my newly formed Limited company. The one room in the house I occupy (a bedroom) in the house is used mostly as an office during the weekday - it has a bed and TV in it which I share with my girlfriend when she comes to stay at the weekend, but also a desk and PC workstation. I sleep during the week day nights in my workshop.Re CGT - yes I will look to keep one of the flats and my workshop in the portion of garden I keep, I will sell the other flat leasehold.Thanks
Thank you some of the various points, yes sorry it is complex - but that's why I am here.I am happy to accept your many years of experience, but will want to see where you get your information - so I feel comfortable in my mind with what I am being told.My concern lies with the amount of CGT I will pay when I split the house and how I have been calculating Private Use Adjustment, after many calls to HMRC I still am no wiser - and what you tell me today goes against what they have said verbally, at least on here I can give a clearer picture - and after contacting you today I am relieved on the one hand to know I have been doing it right all these years, but concerned on the other that HMRC will penalise me heavily with taxes had lodgers when I come to sell a flat off.
"you do NOT include the workshop OR the store as none of these have any use or availability to the tenants" - confused - my 'bed'room in the house has no 'use or availability to the tenants' they are not allowed in there, yet it is Private Usage, maybe I should stop calling my outbuilding a 'workshop' - my understanding of a home/dwelling is that it can include outbuildings, can you point me to the HMRC reference manual/s that explain all this.Many Thanks
Thanks links, all read.
I opted out of the rent a room scheme straight away when I started renting, so its income less expenses (expenses less private Usage) as you say on my Property Pages since I startedI agree I have four tenants in four rooms, who have wholly and exclusive use - this constitutes the rental business portion.My main question here is trying to establish the area of 'private use' I have in my house - 'private use adjustment' fractional calculation of expenses.Is it the type of exclusive use of the room that is the deciding factor as to whether its private or not ?
So I cannot include the outbuilding I sleep in or work out or practice my drumming in - as its also used and so not exclusive - would that then not also apply to my bedroom ? - that is not exclusively my bedroom - but a glorified office during the week where I spend many hours preparing files and dealing with admin matters.Several houses in the road have buildings of similar size and shape with people living in them built in the back garden, I would definitely class them as a residential dwelling space - but again in my circumstances this type of area Im possess is not used exclusively use - so cant be treated as exclusive Private Use.
Theoretically - if no equipment existed in the outbuilding - and it was more like one of these residential spaces - with an identical amount of business use my bedroom gets (admin with one computer workstation) - would it not then count as private usage ?However - you view my bedroom as the only exclusive 'room' used by me, which I accept if that is what you judge to be correct.
In essence I think your saying - if it looks like a bedroom in a residential property then it is a bedroom - if it looks like a workshop in a back garden then it is a workshop, and most importantly the usage must be exclusively Private.So the fractional calculation is: one live in landlord, and four tenants - so its 1/5th of expenses Private Usage Adjustment.Regarding the claim of the outbuilding as an office by my business, £3 seems a poultry amount - I am not a mini cab driver who needs to simply sit at a desk and write up a few dockets - my demands on the space are greater than that, can a portion of bills not be claimed space, I thought then Wholly and Exclusively rule allowed that.
If you can be so kind as to answer those questions and we will move on to the CGT question.
Thanks reply, makes a bit more sense with that last reply. CGT here are assumed figures conversion:Bought the property 04/2003, paid £250,0001st lodger from 08/2005
2 lodgers from 09/2005
3 lodgers 11/20053 lodgers 06-07, 07-08, 08-09, 09-104 lodgers 10-11, 11-12, 12-13, 13-14, 14-15Assuming development of house into two flats, and a sale of one flat around October/Nov 2015:Flat 1 Value £400,000(I will retain this flat and live in it)Flat 2 Value £430,000(Flat Sold)Cost of conversion: £25,000Unconverted Value at Oct/Nov 2015 £550,000
I have looked at CG65271 but need to know how I calculate the CGT with Private Residence relief and Letting relief as I have let part of my home (as above). Could you show me your workings please.
I appreciate the extra time you have spent, thanks, ***** ***** my first time using this service so am finding my feet.
To answer your questions:Yes I will have a bedroom in the retained flat, and have two lodgers, it will have 3 bedrooms.At present there are 5 bedrooms in the property, up till 2010 one of these bedrooms was a shared living room.Flat 2 will be sold straight after conversion.The conversion will start 01/04/2015, from this date I will retain tenants, albeit with one less tenant (total 3), the conversion will finish 6 months later 30/09/2015 and flat 2 will be put on the market and I and my tenants will move into flat 1 om 30/09/2015, the garden will be divided, I will retain my workshop and store as part of the flat one properties garden space.
Sorry I should have added - a hip to gable loft conversion on the property (cost £25k) will be finished and occupied 01/04/2015 this will add one bedroom to the unconverted property (total 6).
Thanks reply, although I've not had a chance to look at it yet, and I am away until early next week, but will do so then and do the rating etc also.