Rent-a-room relief gets rid of tax headaches

Many of those who might have considered taking in students have shied away from it in the past because of the tax implications.

"You'd be afraid if you took someone in that one of the neighbours might ring up and tell the tax man," says one woman, who has decided to take in lodgers because of the new rent-a-room relief.

But as well as freeing up landlords from the income tax implications of renting out a room, the provisions in the Finance Act 2001 also ensure it will not affect the capital gains tax relief, mortgage interest relief or stamp duty relief available to owner-occupiers.

According to accountants KPMG, letting part of one's sole or main resident will not affect the individual's entitlement to mortgage interest relief.

Down the line, if the landlord or landlady decides to sell their house, s/he will still be entitled to the capital gains tax relief available for the sale of principal private residences, something not available to investors.

Those who bought new houses on which they claimed stamp duty relief after the introduction of the first Bacon report in 1998 will not have to worry either.

Under the Bacon provisions, they qualified for stamp duty relief only if they did not receive any payment of rent from the property for a period of five years after purchase.

Those in breach of this clause, which was designed to help owner-occupiers at the expense of investors, became liable for a clawback of the stamp duty relief.

However, the Revenue Commissioners say such property owners need not worry about renting out a room now, as the last Finance Act contains an amendment to the effect that there will be no clawback of stamp duty on such properties due to the new rent-a-room scheme.

The Revenue also say that income qualifying for the relief is not liable for PRSI or the health levy.

The new budgetary measures, which are closely modelled on a similar scheme introduced in Britain in 1992, should also make life easier for students on the tax front.

In the past, many had trouble getting rent relief and rent allowance forms signed by property owners, who were wary of coming to the attention of the Revenue.

"It means students can get rent relief forms signed because there are no tax implications for the landlady," says Ms Fiona Kenny, accommodation officer at NUIMaynooth.