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Hosting foreign students and Revenue’s rent-a-room relief

Hosts are entitled to earn up to €14,000 a year from renting a room with no tax liability, but step over that threshold and all the income is taxable

Renting a room is a valuable tax-free option for homeowners looking to defray mortgage costs but there are strict limits on how much you can earn. Photograph: iStock

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Dominic Coyle
Sun May 19 2024 - 10:52

I got this reply recently from Revenue’s PAYE division. I have students stay for a month or two at a time and inquired about this relief because I couldn’t find anything on Revenue.ie about it and this is what I got back. “Underage Spanish students in your home for a few weeks or months does not qualify for any relief.

“There is no tax relief for you renting to part-time students. The rent-a-room relief is for long-term letting of a room in a property you live in. Underage Spanish students in your house for a few weeks or months does not qualify for any tax relief.

“You get paid this income and you should be declaring it as untaxed income arising in the State on your end-of-year tax return as it is taxable.”

Ms M.M.

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I’m just not really sure where to start on this one. As a rule I find the Revenue Commissioners remarkably helpful in providing clarity on what is and is not allowed in terms of tax reliefs, exemptions, credits, etc. That applies in both my professional capacity and in a personal capacity.

But the information you have been given here by a named individual on the PAYE tax team appears to me to be simply wrong.

Rent-a-room relief is one of the most valuable tax reliefs available to ordinary taxpayers working without the benefit of fancy lawyers or tax consultants. It says, quite simply, that you are entitled to receive up to €14,000 in any tax year for renting out a room in the home you live in with no liability to tax.

Unsurprisingly, there are conditions and – this being tax law – exceptions.

The main rules are that the renting must be in your main family home or an annexe to it, not any other property you own. And renting to close family, such as your child, is not included. However, it would cover rental where the tenant is a nephew or niece. The same is true if you are renting to someone on behalf of your employer. That too would be excluded.

The other main thing to note is that the €14,000 rental cap is absolute and all-in. If you charge for items such as meals or laundry on top of the rent, it is included in the calculation of income. And if you fall a single euro over the €14,000 threshold, every penny of the money you have earned from renting the room suddenly becomes liable to tax.

So keeping records and making sure you stay within the limit is critical as an additional €14,000 in untaxed income is a very valuable relief for most families.

The final thing is that the rental should be long term – which is defined as a continuous letting period of not less that 28 days. This is a measure in place since January 2019 specifically designed to prevent the application of the scheme to short-term holiday lets, such as those on Airbnb or similar platforms.

You mention that these students are staying with you for a month or two. In that case, they seem to be covered absolutely by the provisions of the legislation. They are not related to you, they are staying in your home and they are staying for more than the 28 days.

However, even if they were not staying that long, as is the case for many Irish families hosting young foreign language students over the summer, Revenue’s own guidance seems to make clear that you would be entitled to the relief.

This is where we come to the exceptions. These are covered by section 316A(3)(c) of the Taxes Consolidation Act 1997 as amended.

There are three main category of exceptions. The first is where the room is let to someone who is incapacitated due to a mental or physical infirmity. The second covers “digs” where students, especially, can stay for the minimum four-week period but only for four nights each week, as they return home for the weekends.

Then we come to the third one, which states: “Paragraph (b) [setting down the 28-day rule] shall not apply where the person using the room or rooms concerned ... is receiving full-time or part-time instruction at a university, college, school or other educational establishment in the State.”

And Revenue’s own Tax and Duty Manual, most recently updated in July last year, states in reference to these exceptions that: “These scenarios include, for example, lettings for respite care for incapacitated individuals, accommodation for full or part-time students, including language students, and four day a week ‘digs’.”

That seems very specifically to cover the scenario of people hosting foreign language students – and note that it also quite clearly covers part-time students, notwithstanding what your correspondence from Revenue says.

And, no, this cannot just apply to students staying with you for a term or college year because the exceptions relate specifically to the 28-day restriction, so it covers stays by language students for less than four weeks as long as they are doing a course here.

Revenue describes its tax and duty manuals as “documents that contain the rules, guidelines, procedures and practices that cover the whole range of Revenue activities”. They are also described elsewhere on Revenue’s website as being designed “to provide assistance to Revenue staff” in dealing with issues arising from tax legislation.

I see nothing anywhere in the legislation or related guidance that suggests the position is any different simply because these students might be minors, nor have I ever heard of such a distinction being made.

So either someone has issued advice without reading the legislation (and the Revenue Manual guidance on how that legislation should be interpreted) or someone has changed the rules and told nobody.

Now I know from your letter that you are even more familiar with the Revenue Commissioners than I am and therefore have a fairly good sense of when you are getting a straight answer and when you are being spun a line. That seems to have informed your decision to cross-check this advice with us.

I have no idea whether the person whose signature is appended to the advice you received actually decided that was the correct approach or whether they were simply passing on the judgment of their managers, so I am not going to embarrass them or the Revenue by naming them. But, to my mind, they are quite clearly wrong given that your brief letter seems to make clear that you are complying with all the requirements under rent-a-room relief.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice

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