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How Much Can I Offset as Allowable Expenses?

Question

If I rent out two rooms (I have three) in my primary residence, what proportion of expenses can I offset as allowable expenses?

Arthur Weller Replies:
I would say 2 / 3 of your expenses. HMRC write the following about interest on page PIM2105 of the Property Income Manual:

"A property may be let for short periods in a tax year or only part of it may be let throughout a tax year (or both); the rest of the time the property is used for private or non-business purposes. Here the interest charged on a qualifying loan on that property has to be split between the rental business use and the private or non-business use. The split is done in whatever way produces a fair and reasonable business deduction, taking account of both the proportion of business use and the length of business use."

And on page BIM47815 of the Business Income Manual they write:

"The factors to be taken into account when apportioning an expense include:

a. Area: what proportion in terms of area of the home is used for business purposes?
b. Usage: how much is consumed? This is appropriate where there is a metered or measurable supply such as electricity, gas or water.
c. Time: how long is it used for business purposes, as compared to any other use?"

The method of apportioning an expense depends on the relative importance of each of these factors. However, you need to be aware that on page PIM2105 they also write:

"Interest paid on a loan used to buy a property cannot be claimed as a deduction in the rental business if rent-a-room relief has been claimed".

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