I have a client who has just refurbished a one bedroom annex attached to their house.
They have asked me if they could use the Rent a Room Relief against any income received each year. This seems fine as they live in the property, but just wanted to check as the annex has a seperate entrance to the house, also are business rates now payable?
Another option would be to treat the annex income as trade income as a B & B, if this was done, could they reclaim the refurbishment costs that they have incurred to get the room up to scratch to rent, this was part repairs and maintenance and part walls / building materials and labour - which I guess would need to be split for CGT purposes? Again, are business rates payable?
The question is which option is best and will deliver the best tax advantage for the client.
Any help or advice would be greatly received.
Cheers, Ross
-- Edited by RossDunn on Wednesday 8th of December 2010 03:48:31 PM
I cannot be definite but it makes sense that Business Rates can only be charged if you are running it as a business (B & B) and the income is treated as Trade Income, therefore the easier route if you would like avoid Business Rates would be to treat the income as Land and Property.
As regards to tax, you could as you have stated use the rent a room relief to eliviate some of the profit, but dependant on how much profit there is likley to be this may not offset all of it - I think that the Rent a Room Relief is £ 4,250 per year.
Also, although I do not know the answer something tells me there may be Capital Gains Tax issues in the future if you treat the income as Trade Income, but now i'm out of my depth as not covered CGT in detail. I'm sure some wiser heads will give a more accurate answer, but that's my best answer.
Stuart
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Stuart
Birmingham City FC - Blues is my religion St Andrews is my church
