rent a room tax

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ronaldo1

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rent a room scheme taxiation

Hi there,

I'm looking for some advice about the rent a room scheme.

I have a 3 bed appartment and it is my ppr. I rented it out to two tennants in July 04 - they have not asked for rent relief. I have the same tennants since. My rental income for 04 was €5160. This is under the rent a room scheme limit of €7620. My rental income for 05 was €10320 - I was unaware until recently that I had to fill out a self assessment income tax return - therefore I have done no returns and paid no tax. This year I'm doing returns for 04 and 05. For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental rincome as rent a room scheme for 05 as €7620.
 
Had this in the wrong forum earlier!!

Hi there,

I'm looking for some advice about the rent a room scheme.

I have a 3 bed appartment and it is my ppr. I rented it out to two tennants in July 04 - they have not asked for rent relief. I have the same tennants since. My rental income for 04 was €5160. This is under the rent a room scheme limit of €7620. My rental income for 05 was €10320 - I was unaware until recently that I had to fill out a self assessment income tax return - therefore I have done no returns and paid no tax. This year I'm doing returns for 04 and 05. For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental rincome as rent a room scheme for 05 as €7620.
 
Re: rent a room scheme taxiation

ronaldo1 said:
My rental income for 05 was €10320 - I was unaware until recently that I had to fill out a self assessment income tax return - therefore I have done no returns and paid no tax. This year I'm doing returns for 04 and 05. For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental rincome as rent a room scheme for 05 as €7620.
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I suspect that you cannot effect such a refund in order to get back into the rent a room limit but I could be wrong. Probably best to ask Revenue, or better still, get independent professional advice.
 
Re: rent a room scheme taxiation

ronaldo1 said:
I have a 3 bed appartment and it is my ppr. I rented it out to two tennants in July 04 - they have not asked for rent relief. I have the same tennants since. My rental income for 04 was €5160. This is under the rent a room scheme limit of €7620. My rental income for 05 was €10320
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Did you buy your appartment within the last five years and if so, did you not have to pay stamp duty on it because its your ppr? If so, the revenue will be clawing back the stamp duty if you exceed the 'rent a room' tax exempt earnings of 7,600 euro p.a. If you exceed this figure in a calendar year, you will be classed as an investor.
ronaldo1 said:
they have not asked for rent relief.
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Proceed with caution. They don't have to ask! The revenue form for rent relief asks for the landlords name/address/pps - but they dont necessarily have to supply the pps. Revenue will be quite happy to dig this out themselves.
I suppose if your also living there, you can gauge (but cant be sure..) if the people concerned are likely to be organised enough to apply for this relief (bare in mind they can also do so retrospectively - up to 4 years in arrears i think).

ronaldo1 said:
For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental rincome as rent a room scheme for 05 as €7620.
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This has been discussed/suggested in a previous aam threads on the subject (run a search). Have you been issuing receipts to your 'tenants'?
 
I haven't issued any reciepts to my tennants. One pays by dd and the other by cash.

I bought the appt in 02 and didn't pay any stamp duty as i was a first time buyer. However I have to keep the appt as my ppr for 5 yrs otherwise a stamp duty clawback will apply.

Just to summarise you comments:
If I exceed the rent a room relief of €7620 in the year I am no longer classified under rent a room relief but I am classified as an investor. Once classified as an investor I will be eligible for stamp duty clawback. Am I correct?
 
I don't think you're liable for stamp duty clawback. You're just renting out rooms in your PPR. The clawback only applies if you move out before the 5 years is up, and rent the property in it's entirety. Because you've exceeded the RARS allowance you are liable to tax on the total rental less any expenses.
 
Thanks. What do you think of my proposal below. Spoke to revenue about it and was advised its ok::

For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental income as rent a room scheme for 05 as €7620.
 
Obviously it's cheaper for you to do it this way. I'm surprised Rev. said it was ok to be honest. Sometimes, as can be seen on other threads, they're not accurate in advice given over the phone. If your tenants have been claiming relief, I suppose it puts the ball back into their court i.e. tell Rev. they had a refund.
 
liteweight said:
I don't think you're liable for stamp duty clawback. You're just renting out rooms in your PPR. The clawback only applies if you move out before the 5 years is up, and rent the property in it's entirety. Because you've exceeded the RARS allowance you are liable to tax on the total rental less any expenses.
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ubiquitous said:
Can you provide any evidence to support this statement. For the record, I don't believe you are correct.
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Err, no. The OP was correct in his original assertion that once you go above the rent a room threshold you are then classed as an investor, and as such are liable to all the appropriate taxs - tax on rental income, stamp clawback and eventual CGT liability.

Though I would also agree with the advice to the OP from Revenue that if he refunded the appropriate amount he'd be ok. I think it's only ok though cos he's dealing with the tax year 05. If it was for 04 and earlier he'd be snookered.

Wish I'd that kind of landlord that rings you up after a couple of years to give a cheque for a couple of grand.
 
Really? So anyone who rents out rooms in their home are classed as investors and would have to pay the clawback, if rent goes over 7620? What about those homeowners who rent to students and language schools? They have to own property for longer than 5 years? I genuinely thought that it was only if you rented the house/apt in it's entirety and did not reside there. I even checked this out with Revenue and was assured that this was the case! Any links so that I can read up on it?
 
ubiquitous said:
Can you provide any evidence to support this statement. For the record, I don't believe you are correct.
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No ubiquitous, my daughter is thinking of buying an apartment and renting out a room. We checked it out with Revenue and I was told that the clawback only applied if property was rented in it's entirety. The only thing they pointed out was that if she went over 7620 in income from rental, then the whole amount would become liable for tax. They said clawback would not be due.:rolleyes:
 
liteweight said:
I even checked this out with Revenue and was assured that this was the case! Any links so that I can read up on it?
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This debate arrose on AAM before.

Revenue state that any rent recieved other than under the "Rent a Room Scheme" result in a stamp duty clawback.

As part of the Rent a Room Scheme rents under a certain threshold remain tax free. Does that mean that rents above that threshold are under RaRS but without the tax benefits??? Don't think anyone has ever fully cleared this one up, at least not to my knowledge.
 
Satanta said:
This debate arrose on AAM before.

Revenue state that any rent recieved other than under the "Rent a Room Scheme" result in a stamp duty clawback.

As part of the Rent a Room Scheme rents under a certain threshold remain tax free. Does that mean that rents above that threshold are under RaRS but without the tax benefits??? Don't think anyone has ever fully cleared this one up, at least not to my knowledge.
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Indeed. These scenarios arise every few years as the original legislation is very loose and indexation is never applied to the limits.

If you fancy taking a risk then go for it but if I was the OP I'd just refund the cash to the tenants rather than taking a chance which could result in a significent tax liability.
 
Satanta said:
As part of the Rent a Room Scheme rents under a certain threshold remain tax free. Does that mean that rents above that threshold are under RaRS but without the tax benefits??? Don't think anyone has ever fully cleared this one up, at least not to my knowledge.
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This is the information I was given...still renting a room but without the tax benefits....no clawback, no capital gains etc. just income tax on higher rental?:confused:
 
liteweight said:
No ubiquitous, my daughter is thinking of buying an apartment and renting out a room. We checked it out with Revenue and I was told that the clawback only applied if property was rented in it's entirety. The only thing they pointed out was that if she went over 7620 in income from rental, then the whole amount would become liable for tax. They said clawback would not be due.:rolleyes:
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A good example of the perils of depending on Revenue "advice"...
 
liteweight said:
This is the information I was given.
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I'm not saying it's wrong! I'm just questioning it. No documents, which I've read, clearly state this is the case.

It can easily be taken either way depending on your reading of the documents. (In fact, I'm not even sure which side of the fence I fall on anymore)

It might be worth requesting it in writing from someone in Revenue (more chance they check it out fully) and ask them to confirm where this "information" is coming from (look for the relevant document, we all know about revenue "advice"!).
 
Satanta said:
This debate arrose on AAM before.

Revenue state that any rent recieved other than under the "Rent a Room Scheme" result in a stamp duty clawback.
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Thanks for that Satanta, I'd forgotten about the thread....it was the reason I rang Revenue to check it out!:eek: I think I'll look for it in writing and let you know what the reply is. A lot of people will be affected if the advice given by Revenue is not correct.
 
liteweight said:
A lot of people will be affected if the advice given by Revenue is not correct.
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To be fair (and this has arose on AAM numerous times too) Revenue aren't there to give advice.

The problem is that most people when talking to revenue don't believe they are getting advice, they think they are getting information and fact! (which is what they should be getting!)

Given the potential costs, people should be very careful what they believe when talking to Revenue staff who can (and do!) get it wrong (personally I think it should be revenues responsibility to ensure the staff don't give out the incorrect information, be it in the guise of advice or information).
 
In relation to my orgional post:...........

Hi there,

I'm looking for some advice about the rent a room scheme.

I have a 3 bed appartment and it is my ppr. I rented it out to two tennants in July 04 - they have not asked for rent relief. I have the same tennants since. My rental income for 04 was €5160. This is under the rent a room scheme limit of €7620. My rental income for 05 was €10320 - I was unaware until recently that I had to fill out a self assessment income tax return - therefore I have done no returns and paid no tax. This year I'm doing returns for 04 and 05. For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental rincome as rent a room scheme for 05 as €7620.

.............i'm now clear that I can write a cheque for €2700 (€1350 each to my two tennants) giving back rent for 05 to bring me under the rent a room limit of €7620 and hence have no tax liability only to declare the €7620 on my tax return. I will also keep the cheque as proof that I've paid it if revenue ask for it or carried out an audit or even if the tennants applied for rent relief.

However can I jump back to my 2004 situation. I started renting out my appt in July (6mts for 04) and recieved €5160 in rent - this is under the rent a room limit by €2460. Can I now in theory back date a rental increase for 04 to maximise my RaRS limit i.e €7620. Hence I don't know my tennants as much overall. I would owe them €1350 for 05 and they owe me €1230 for 04. Balance I owe them is €120ea. Is this possible. ANain I ran this by Revenue and the "advise" I got would be that this is ok. All that would appear on my return for 04 is €7620 and the same for 05. Should I ask revenue for this in writing or get an accountants or tax advisors advice.
 
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