I am purchasing my first home and I am looking to buy a place with sufficient space to rent out additional rooms, ideally availing of rent-a-room relief.
I have heard that the threshold for rent a room relief is €14,000 and, if this limit is exceeded from rental income, I would be liable to tax on the entire income.
I have also read that Revenue does not consider income arising from short-term guest accommodation as rental income, as visitors use the accommodation as guests, rather than tenants. It is taxed as either “other income” or “trading income”.
Does that mean I can claim the full €14,000 tax free allowance by renting out some space as rental accommodation, in addition to providing short-term guest accommodation, in the form of letting out an additional room on Airbnb?
Mr J.P., Dublin
With all the doom and gloom around these days, it is good to hear of people who are getting on with their lives in something like a normal fashion. And you’ve clearly done some homework on your options for earning additional income to help meet the cost of your mortgage.
The one thing most advisers would suggest, however, is that you do not make your financial plans based on the most optimistic forecasts. You need to make sure the home you hope to buy is affordable even if all the income streams you hope for fail to materialise as regularly as you anticipate.
The first thing to confirm is that you are correct that the letting of rooms (or beds) in your home to short-term paying guests will not qualify as tax-free income under the rent-a-room relief. But there is nothing to stop you using both arrangements to boost your income and help meet the cost of the mortgage.
Rent-a-room relief was introduced way back in 2001 to help homeowners make ends meet. It is useful not only to first-time buyers, who are often cash-shy given the big bills they are paying, but also to older people looking to boost income in retirement when children have moved out.
As you say, the limit you can earn is €14,000 per calendar year – or just under €270 a week on the basis the room is let for the full 52 weeks of the year. Observing the limit is critical. Step €1 over and the entire €14,001 suddenly becomes liable to income tax and universal social charge (USC).
There are a couple of rules. Clearly, it applies only to your own home – your principal private residence in Revenue terms – not a second property and you must be resident in the home at the same time.
The room (or rooms – yes, there’s nothing limiting you to one room apart from the upper income limit) cannot be let to your child or partner – though you can let it to any other family member, for instance a sibling.
And they must be let to medium- or long-term guests – the minimum is four weeks. So, someone attending language school or college is okay; someone visiting for a week or two is not.
Bear in mind that anything you receive in rent is supposed to cover bills associated with the rental – such as maintenance of the room.
It’s important to remember that, even though the income is tax free, you are obliged to declare it, so you will need to file a tax return.
So far, so good. But you also want to explore the option of letting a room or rooms to short-term guests through portals such as Airbnb.
First things first. Make sure any such arrangement does not transgress any agreement you have with a rent-a-room tenant. You don’t want to risk up to €14,000 in steady tax-free income for a quick buck.
Short-term lets – defined as periods of up to 14 days – have become much more contentious in recent years – particularly as the the supply of available rental accommodation dried up. In many local areas, it is a hot political issue.
The good news, for you, is that those least affected are people in your position – those following the original Airbnb model of letting people stay with them in their homes. Those letting second homes or apartments are now more stringently controlled.
In many cases, especially in rent pressure zones, Airbnb landlords require planning permission – which they are increasingly unlikely to get. However, there are exemptions to this and one of those is for owner occupiers accommodating short-term guests in their home while they continue to live there – an arrangement the Revenue Commissioners call "home-sharing".
In that case, a landlord can accommodate as many short-term guests as they want. A landlord who rents out their entire home – as long as it is their home and not an investment property – can also avoid planning permission even if they are not there for that period as long as it is not let for more than 90 days in a year. Those 90 days can be spread out across the year: they don’t need to run consecutively.
However, you will need to register the property with your local planning authority. The forms required are Form 15 and Form 17. The first is filed at the start of the year, the second shortly after the end of each year in which you are availing of the exemptions.
Your local authority will be able to provide copies – most likely from their website.
Finally, exempt from planning or not, income from short-term lets cannot be filed under rent-a-room relief and is subject to tax and USC. You will be obliged to declare it to Revenue via a return each year, so make sure you keep your paperwork clear and up to date.
The one thing I would counsel is not to overextend yourself financially. Income from rent-a-room relief and Airbnb or some other short-term booking portal can be very helpful in meeting mortgage payments even after tax is deducted, but only if there are people to rent the space.
If you have made this choice a year or two ago, you could be seriously stressed financially now, with universities working remotely and zero tourist travel. With vaccination being rolled out, the assumption must be that the next college year will see a return to physical lessons. How long it takes tourists to return is an altogether different issue.
People think these things are once in a lifetime but we have now had two economic shocks affecting property, employment and tourism in the space of 12 years – well within the life of an average mortgage.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email firstname.lastname@example.org. This column is a reader service and is not intended to replace professional advice. No personal correspondence will be entered into