If you rent out a room (or rooms) in your home to private tenants, the rental income you earn will be exempt from income tax, provided this income does not exceed a certain limit in a tax year. This is called the rent-a-room relief. A self-contained unit, such as a basement flat or a converted garage attached to your home, can qualify for this relief.
For you to qualify for rent-a-room relief, your home must be located in the State and you must occupy it as your sole residence during the year of assessment. This means that it is your home for the greater part of the year and is where people would normally expect to make contact with you. In most cases, you do not have to own the property – you could be a tenant and be sub-letting to someone else.
You cannot deduct expenses from your rental income while claiming rent-a-room relief. However, depending on the circumstances, it may be worth your while to opt-out of the relief in a particular year in order to offset expenses against the rental income and avail of wear and tear allowances. If you qualify for rent-a-room relief, the income you get from renting out the room is not liable to PRSI, the Universal Social Charge, or income tax. However, it must be included in your annual income tax return.
Rent-a-room relief will not affect your mortgage interest relief or your exemption from Capital Gains Tax (CGT) if you sell your home.
Exclusions from rent-a-room relief
You will not qualify for the relief if:
- Your gross income from rent and related services is over €14,000. In this case, Revenue will treat your rental income minus allowable expenses as part of your total income for tax purposes and should be included in your tax return.
- You are renting the room in your home to your civil partner, son, or daughter (but there is no restriction in the case of other family members).
- You are an employee or office-holder in a company, and the company pays you to allow clients to use the room in your home on an occasional basis.
- You are renting the room to short-term guests, for example, through an online accommodation booking site
- The relief applies only to
residential tenancies, not to short-term guest arrangements. The occupants must be using the room on a long-term basis. So, renting a room to a student for the academic year or for a one-month course is covered, but providing accommodation to occasional visitors for short periods, for example, through an online accommodation booking site, is not, as this income is not considered to be rental income. This is because the visitors use the accommodation as guests rather than tenants. Revenue has published a guidance manual on how this income is treated for tax purposes.
If you normally rent out the room for the academic year and you rent it out for short breaks during the summer as well, you must identify the income you get from the short rentals, separately from the income that qualifies for rent-a-room relief, when making your tax return to Revenue.
Agreement with your tenant
Before you arrange to rent out a room in your home, it is strongly recommended that you and the tenant agree to some ground rules and put them in writing. If you and your tenant each sign and keep a copy of this agreement, you can both refer to its terms in the event of confusion or disagreement.
These ground rules might include:
- How long is the tenancy going to last?
- How much notice will you or your tenant have to give if either of you chooses to end the tenancy?
- How much rent will the tenant pay and how often (for example, weekly, monthly)?
- How will this rent be paid (cash, cheque, standing order, etc.)?
- When will the rent be reviewed and how much notice will you give the tenant of a rent review?
- How are utility bills (such as electricity, gas, phone, broadband, TV, waste charges) to be divided between you and the tenant?
- Can the tenant have visitors to stay overnight?
- Are there any restrictions regarding noise levels?
Where more than one person is entitled to benefit from the rent (for example, you and your spouse), this limit is divided between the individuals concerned.
How to apply
To claim rent-a-room relief you must record your rental income when making your annual tax return.
If you wish to opt-out of the rent-a-room relief in a particular tax year, you must notify Revenue in writing, on or before the return filing date for that tax year.
KEY FILING DATES – AUGUST 2020
|TAX HEAD||RETURN||PERIOD||PAYMENT &
|Dividend Withholding Tax||DWT||July 2020||14th August 2020|
|Professional Services Withholding Tax (PSWT)||F30||July 2020||14th August 2020|
|PAYE/PRSI/USC/LPT||Monthly Deductions||July 2020||23rd August 2020|
|Corporation Tax||Preliminary tax||Accounting periods ending 30th September 2020||23rd August 2020|
|Corporation Tax||Corporation Tax Return (Form CT1)||Accounting periods ending 30th November 2019||23rd August 2020|
|Relevant Contracts Tax (RCT)||RCT Monthly Return||July 2020||23rd August 2020|
|Corporation Tax||Returns of Third-Party Information (Form 46G)||Accounting periods ending 30th November 2019||31st August 2020|
|Corporation Tax||Close companies with undistributed profits||Accounting periods ending 28th February 2019||31st August 2020|
For more information, Book a Free Consultation