Income Tax for FTB Renting 2 Rooms...

C

Claude

Guest
Hello,

I am a FTB and plan to rent 2 rooms in a 3 bed I am in the process of buying (I'll live in the 3rd room). It's in a good rental location so think I will get close to 1K rent pm. Can anyone tell me what the income tax implications of this are? Will I have to pay full income tax on all my rental income (12K per year)?

Given that a large proportion of my repayments for the first few years is going to be interest, can I offset this against the rental income and only pay tax on the balance?

In short, if the rent I receive is 1K pm and my interest payment on the mortgage is 1,200, will I still have to pay income tax?

Thanks
 
No, but you will have to pay stamp duty on your purchase. This is financial suicide. Rent out the rooms so that you receive no more than the cut off point for the rent a room scheme (7.5K ish). Then you won't have to pay tax on your rental income or stamp duty.
 
Cheers for the reply Howitzer.

I read up on the whole clawback issue and as far as I can see I wont have to pay the stamp duty no matter how much rent I receive:

"Provided that the purchaser continues to occupy the house as his or her PPR for the relevant period, a clawback of stamp duty will not arise even where the rent received is in excess of the annual threshold (�7620) which applies for income tax purposes" (www.revenue.ie)

I think the fact that I'm going to live in the house takes away the risk of having to pay stamp duty. Not sure where it leaves me with regard to the income tax issues I mentioned before....

Thanks
 
Well that's a new one on me. Can you post a link to the entire document? My understanding was that once the property became an investment property then stamp duty was liable. There may be an assumption that you aren't going to offset the interest paid against rental income, that you continue to claim your first time buyers mortgage interest relief instaed (you can't claim both) Thread careful.
 
Check out details of the rent-a-room scheme at [broken link removed]

I'm still in the dark with regard to declaring my mortgage interest payments as a 'cost' and offsetting them against the rent I will receive (thereby reducing the income tax I would have to pay). Anyone know if I can do this?
 
Claude said:
I read up on the whole clawback issue and as far as I can see I wont have to pay the stamp duty no matter how much rent I receive:.
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You should get concrete professional advice as to whether this is actually the case before making any decision to proceed.

Claude said:
I'm still in the dark with regard to declaring my mortgage interest payments as a 'cost' and offsetting them against the rent I will receive (thereby reducing the income tax I would have to pay). Anyone know if I can do this?
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The element of interest that applies to the rental income will be allowable. The element that relates to your own occupation of the property (presumably one-third) will not be allowable. Again professional advice is recommended unless you know exactly what you're doing here.
 
Cheers Ubiquitous. Sounds like it might be a bit more complicated that I'd hoped.

Can anyone recommend a tax advisor/firm that could assess my situation and give me a definitive answer?
 
From that document the definition of an Owner Occupier would seem to preclude you from earning more than the Rent-a-room scheme limit.

An owner occupier is a person who purchases a new apartment or house for use as their principal place of residence (PPR) and no rent, other than rent obtained under the rent-a-room scheme, is derived from the property for a period of five years from the date of the current purchase. This relief is subject to clawback provisions.
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This directly contradicts the Rent-a-room scheme definition which you have quoted. I'd stay under the Rent-a-room scheme limit and so avoid any confusion.
 
The bottom line on this query is that the legislation determines the position, not what is or isn't published on a Revenue leaflet or website.
 
Howitzer said:
My understanding was that once the property became an investment property then stamp duty was liable.
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This is correct Howitzer, but in the OPs case they are not planning on turning it into an investment property. It is still going to be their PPR and they are only obaining rental income under the Rent-A-Room scheme (even if it exceeds the threshold at which they would have to pay tax or not) so no stamp duty clawback will apply.
 
In which case the OP can't offset interest against rental income (investment property), but can claim TRS (PPR)? That would seem to me to be a reasonable interpretation. In that scenario it still doesn't really make much sense to be taking over the rent-a-room limit, unless you're talking about 16K+, as you'd be taxed at your marginal rate and you'd end up with less into your hand. You would in effect become a tax collector for the Govt at no benefit to yourself.
 
Howitzer said:
In which case the OP can't offset interest against rental income (investment property), but can claim TRS (PPR)? That would seem to me to be a reasonable interpretation.
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Reasonable perhaps in terms of logic, but correct in terms of the law? I'm not so sure.
 
ubiquitous said:
Reasonable perhaps in terms of logic, but correct in terms of the law? I'm not so sure.
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I'm not sure either but as a general rule you can't just cherry pick the best elements of any number of tax positions to suit your own ends.

And just to throw another element into the equation; you must register with the PRTB in order to offset interest against rental income, you don't need to register with the PRTB when you're simply renting out via the rent-a-room scheme. In fact the protection afforded to both the Landlord and Tenant by the PRTB doesn't apply under the rent-a-room scheme.

As ever with any tax related issue it's up to the OP to take care of their own tax affairs. You could get advice from any number of valid sources (Revenue, tax advisor, even Eddie Hobbs) but if Revenue disagree when you make your tax return then you've very little comeback. I would always say that where there's a tax break, take it, but if you're coming up with lots of contrived "what if" scenarios then it's not worth the risk, especially with property where the numbers are very big and the difference between being classified as a PPR or investment Property can run into the 10's of thousands.
 
There is also a degree of risk involved in assuming that the relief won't apply and using this assumption as a basis for not doing any deeper research.
 
Thanks for all the feedback. I've read through it with interest. As an additional point, I've also found the following in the Q & A section of the revenue website:

"4. To help with the mortgage repayments, I intend letting part of my house. What tax relief can I claim against my personal income tax and against the rental income?

In this situation, part of the mortgage interest may be claimed as a normal interest credit against your personal income tax. However, the balance of the interest may not be claimed as a rental deduction. The mortgage interest applicable to the let part of the house will be determined on a just and reasonable basis. For example, the apportionment of the interest may be by reference to the number of rooms let."

This seems to back up Ubiquitous's first post (suggesting that 1/3 of the mortgage interest cannot be offset against rent as it is seen as the interest I am paying on my room as opposed to the rented rooms).

I guess the long and short of it is that I will have to get professional advice and ensure at all points that what I'm doing it legit. I'd be hopeful that, as a PPR, I wont be subject to stamp duty clawback and that I wont have to pay full income tax on the rent I receive (although it looks like I'll have to pay some)

If I get a definitive answer in teh next few days, I'll post it here.

Thanks
 
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