Have you got space in your home and fancy some additional income and company? The Rent-a-Room Relief might be just the answer.
The Rent a Room scheme was introduced to allow hard up home owners to rent out rooms in their house and, here’s the good part, not pay tax on it!
If you rent a room or rooms in your home to private tenants, the rental income you earn will be exempt from tax. You can receive up to €14,000 in income under this scheme. If more than one individual benefits from the income, the limit of €14,000 is divided between any individuals concerned. In addition, the tenant that you rent a room to is also entitled to claim tax relief on the rent that they are paying to you. This rule does not apply to a situation where you are renting a room to a son or daughter.
Another advantage of this scheme is less paperwork and legislation than normal rental agreements.
Under the Rent a Room scheme, you are not covered by the landlord / tenant legislation in Ireland. For example, you don’t have to register with the Private Residential Tenancies Board (PRTB) as a landlord, you don’t have to provide a rent book to the tenant and you don’t have to ensure that the room you are renting meets any minimum physical standards. Your tenant does not have a tenancy agreement but rather a Licensee Agreement and is only entitled to “reasonable notice”.
Before you agree or choose to rent out rooms in your home, it is strongly recommended that you and the tenants agree some ground-rules in advance. You should put these ground-rules in writing and both parties (i.e. you and your tenant) should sign and each keep a copy of this agreement so you can both refer to the terms of your agreement in the event of confusion or disagreement. Some of the ground-rules you might consider are:
§ What will the period of the tenancy be?
§ What will be the minimum periods of notice if either party chooses to terminate the agreement?
§ How much will the rent be and when can this be reviewed?
§ How will rent be paid and is rent to be paid weekly/fortnightly/monthly?
§ What is the situation regarding visitors and friends staying over?
§ Are there any restrictions regarding noise levels?
As a tenant operating under the rent a room scheme, you can still claim Rent Relief.
Effect of rental income on social welfare payments
If you are getting a means-tested social assistance payment from the Department of Social and Family Affairs any rental income you get will be assessed as means and may affect your payment. However, rental income will not be assessed as means, if you are getting a Non-Contributory State Pension or a Non-Contributory Widow’s / Widower’s Pension.
Rules
The rent you receive including sums the tenant pays for food, laundry or similar goods and services cannot exceed €10,000. If you receive rental income over and above this amount, you are not entitled to the relief and have to pay tax on the full amount of the rental income.
A residence that qualifies for tax exemption must be in Ireland and must be occupied by you during the year of assessment as your principal private residence. Remember, you can only have one principal private residence to Revenue eyes.
If you are receiving mortgage interest relief, you will not be affected by renting a room in your home in this way. Renting a room in your house under the scheme does not affect your exemption from Capital Gains Tax when you sell your principal private residence.
You can choose that this relief does not apply in a particular year of assessment by writing to the Inspector of Taxes in your tax district, prior to filing your tax returns for the period in which the room was rented.
There is no deduction for expenses made in working out the rental income received. If the income you receive does not exceed the limit in the year (currently €10,000), then these profits/losses are treated as “nil” for the year of assessment.
You will not get Rent a Room tax relief if your gross income from rent is over €10,000. In this case, your net rental income will be treated by Revenue as part of your total income and should be included in your tax return.
Rates
Rental income achieved from renting rooms in your home is exempt from tax up to a maximum limit of €14,000 (2020). This limit differs in previous years.
Rent a room scheme income is also exempt from PRSI, Health Levy and is one of the few incomes exempt from the Income Levy.
How to apply
You must enter the amount of exempt income on your:
- Form 11 using the Revenue Online Service (ROS) if you are self-assessed
- Income Tax return using myAccount if you pay tax through the Pay As You Earn (PAYE) system.
You will then receive the relief due.
There is a four-year time limit to claim relief. This is important if you have been paying tax on your rental income which should have been exempt.
