Should I sell my house or rent it out?


The house would have to remain as her principal private residence (PPR) for her to be able to rent out a room under the rent-a-room scheme. Technically I think that Revenue consider that your PPR should be your main residence, so she could be on dodgy ground if she wasn't really living there. You're right though, in practise it wouldn't be that easy to catch her.
 

Technically dodgy, and naive in practice. The ins and outs of this have been discussed ad infinitum.