Rent Entire House or use Rent-A-Room Scheme???

[ronaldo]

Hi,

I am a 23 year old IT worker and am in the process of building a house (planning permission secured, mortgage approval received, founds going in next month). The house will be layed out as two 2-bedroom apartments (1 upstairs, 1 down), i.e. a locked door in the porch to go upstairs or downstairs in the house.




The original plan was to rent out both the apartments whilst continuing to live at home with parents. Then, possibly in a few years, moving into one or buying a new home as my PPR. The calculations I have made for this scenario are as follows:

Income
Typical Rent: €10,400 (€100 per week per apartment)
Voids: € 800 (4 weeks per apartment)
Net Rent € 9,600

Expenses
Insurance € 600
Wear and Tear € 1,000 (€4,000 per apartment @ 12.5% p/a)
Mortgage Interest € 4,300 (€120,000 mortgage @ 3.55%)
Total Expenses € 5,900



​

Taxable Rent € 3,700
Tax € 925 (25%)


​

Income - Expenses - Tax = Profit
€9,600 - €5,900 - €925 = €2775



​

However, after reading through this board about the Rent a Room Scheme, I have come up with the following idea which may be very worthwhile. Instead, I would live in one of the apartments and rent the other apartment. I would also rent the spare room in my apartment to a friend to bring me up to the rent-a-room limit. My calculations are as follows:

Income
Typical Rent: € 7,620 (€100 per week for upstairs/€45 per week for the friend)
Voids: € 400 (4 weeks for the apartment)
Net Rent € 7,220

Expenses
Insurance € 600
Wear and Tear € 1,000 (€4,000 per apartment @ 12.5% p/a)
Mortgage Interest € 4,300 (€120,000 mortgage @ 3.55%)

Total Expenses € 5,900

Profit € 1,320



​

For my first question, I was wondering is it possible to have a section of your PPR, i.e. upstairs, set up with its' own kitchen, bathroom, living room, etc. and rent this to someone under the rent-a-room scheme - kind of like a mutual agreement that you won't use that part of the house.

One of the advantages of the second scenario above is that there will be no voids in one of the apartments (although this is factored into the calculations anyway).

The major advantage of the second approach would be the CGT element. I got the site very cheap and am getting the house built by a relative whom is a building contractor which will also save money. Basically, he estimates that the total cost to me will be €130,000 and the end value will be around €200,000 (lets say €190,000 as I would like to remain relatively conservative with my figures). This means that, should I wish to sell the house, I will have to pay Capital Gains Tax on €60,000. I think CGT is 23% which would amount to €13,800. I would not have to pay a penny if I used the second option as it is my PPR. Although I have no intention of ever selling this house (am more likely to purchase a separate house as my PPR in a few years), one never knows what the future holds.

Basically, I would be settling for a reduction of €1,455 in profit. However, this would be recouped in capital gains tax excemptions if I sold within 9.5 years (€13,800/€1,455) - assuming no capital appreciation in the meantime. I would also have the advantage of my independance after moving out of my parents home (although lets forget about that for the purpose of this discussion).

The purpose of this post is that, from reading other posts, I know that there are some very bright minds on AAM and I am always up for some constructive criticism for my ideas as it is my first major financial decision and I'd like to go into it with as much info. as possible.

Thanks for reading.

 

[bleary]

Saw this as a query in one of the papers business sections
In that case a couple wanted to turn their basement into a basement flat and use rent a room -
Anyway the definite answer to it was that this was not allowed under the rent a room scheme I suppose because you cant claim that 2 apartments are both your PPR -

 

[RainyDay]

I'm pretty sure the Rent-a-room wouldn't apply to this scenario. Are you sure the 25% tax rate will apply to you?

 

[bacchus]

Saw this as a query in one of the papers business sections
In that case a couple wanted to turn their basement into a basement flat and use rent a room -
Anyway the definite answer to it was that this was not allowed under the rent a room scheme I suppose because you cant claim that 2 apartments are both your PPR -

Did not read the article so i am not familiar with details of this particular case. But i am interested to know on which grounds the definite "no" is given as answer.

Here is how i see it:

Rent-a-room scheme described by Revenue in leaflet IT70 applies when "rooms" in "qualifying residence" (e.g. PPR) are rented out and that income (incl bills) is less than €7620.
There is not mention in revenue leaflet about the arrangements of the rooms, neither states that the rooms must be shared nor that the rooms can not be "privately" used.

Now, is it allowed to have 2 bedrooms in a PPR?
Is it allowed to have 2 kitchens in a PPR?
Is it allowed to have 2 bathrooms in a PPR?
Is it allowed to have 2 dens in a PPR?
I think the answer to all 4 questions is "yes".

So, if some rooms (1 bed, 1 bath, 1 kitchen, 1 den) are partionned off and rented out (but still connected with internal door - locked- to rooms used by owner) , owner still lives in other rooms and gets all bills (assume there is only on gais connections, one phone line, one ESB connections...)
Why would "rent-a-room" scheme not be applicable as the conditions for "rent a room" scheme are met?

Or did i miss something?


Note: Ronaldo's case may be slightly different and rent-a-room scheme may is not applicable if the planning application clearly shows 2 flats, but I am not qualify to state definitely.