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Where an individual lets a room (or rooms) in their home for residential purposes and the annual gross rental income received does not exceed €14,000, the income may be exempt from tax rather than being subject to income tax under Schedule D Case V. Where the rent is paid to more than one individual, the limit of €14,000 is divided between each individual.
Any amounts the tenant pays to the landlord in respect of meals, cleaning, laundry etc. must be taken into account when determining the gross income. No deductions are allowed for any expense incurred by the landlord in respect of renting the room when calculating the gross income. Where the gross rent received by the landlord is in excess of €14,000, the entire rent will be taxable, and no relief will be granted.
The relief can only be claimed by individuals and cannot be claimed by companies or partnerships. For the relief to apply, the room or rooms being rented must be in the claimants sole or main residence.
A person’s sole or main residence is where they spend the greater part of their time. An individual can live in more than one residence and still claim the relief, but it may only be claimed in respect of the sole or main residence. To avail of the relief, the claimant must live in the residence and the rented rooms must form a part of this residence. The rooms can comprise a self-contained unit within the residence, for example a basement flat, but the self-contained unit must be attached to the residence. Where the self-contained unit is adjacent to the residence but not actually attached to the residence, the relief will not apply.
Rent-a-room relief cannot be claimed in respect of rent received from a person’s child or their spouse or civil partner. There is also a restriction on rent received either directly or indirectly from a tenant, or a person connected with the tenant, where the tenant and the landlord work together either as fellow employees or in an employee/employer relationship.
The relief does not apply to rent received in respect of letting periods that do not exceed 28 consecutive days unless the tenant:
These limitations were introduced to further clarify that this relief is intended to incentivise residential lettings and was not intended to provide tax relief for short term lettings for example lettings made through ‘Airbnb’ or other similar sites.
Where the gross income arising from the renting of a room does not exceed €14,000 in a year and the above conditions are met, the income is automatically exempt from income tax, PRSI and USC. The individual is still obliged to file an income tax return (Form 11 or 12) to disclose the amount of exempt income received under rent-a-room relief.
A landlord is not obliged to avail of rent-a-room relief and can elect to have their income assessed as if it were normal rental income. The landlord must make an election in writing for each year they do not want the relief to apply and must make the election to their tax office on or before 31 October each year. Where the landlord is required to submit an income tax Form 11, the election is made by marking the relevant box on the return and no additional election is required.
For landlords claiming rent-a-room relief, any other rental income will be taxed as normal under Schedule D Case V and will have no impact on the availability of rent-a-room relief.
A Capital Gains Tax (CGT) exemption applies where an individual sells their Principal Private Residence (PPR). The CGT exemption is not impacted where an individual has rented a room in their PPR and availed of rent-a-room relief on the income received.
Generally, landlords are required to register details of their residential tenancies with the Residential Tenancies Board (RTB). However, the requirement to register a tenancy does not apply where the landlord and tenant are sharing the same self-contained unit.
If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars corporate tax team below:
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