Renting a room

Q&A: I am an owner-occupier living in Wicklow and I have a lodger whose rent I am declaring under the Rent a Room scheme, which permits a level of rental income to be accrued without incurring income or capital gains tax liabilities.

However, I have recently taken up a new job in Dublin and am considering renting a property closer to my new place of work, as the commuting is beginning to take its toll.

My question is can I continue to avail of the Rent a Room scheme with my Wicklow property as it is the only property I own - or am I obliged to live there for a certain amount of the year? If so, is there a precise number of days?

Mr D.D., Wicklow

You will not be alone in looking to assess your financial situation as we enter the new year. And, as the economy slows in 2008, such a review will become more essential.

The Rent a Room scheme has been a valuable opportunity for people to defray the cost of their mortgage payments - allowing them to rent a room or rooms in the property without being liable to tax, as long as the total rental income does not exceed €7,620.

In his recent Budget, Minister for Finance Brian Cowen announced this threshold would be increased to €10,000 per annum.

Such rentals have the added advantage in that they do not impact adversely on mortgage interest relief or the capital gains tax exemption allocated to one's "principal private residence".

However, the relief is only allowed on what the Revenue calls "qualifying residences" and that is the crux of the issue as far as your query is concerned. A qualifying residence is defined by the Revenue as a residential premises which is occupied by an individual as their principal private residence.

As you can see, this would not allow you to continue to claim the relief if you move out of the property - even if you do not own any other property and only plan to rent in Dublin.

Getting down to numbers of days is splitting hairs with the Revenue.

As far as I am aware, there is no specific threshold, but I think you would be hard put to persuade the Revenue you lived there if in fact you were absent for most of the week and stayed in rented accommodation in Dublin.

My guess would be that the sort of relocation you suggest will see the Revenue deeming any rental income as liable to tax.

By the way, people regularly point out to me that, while a person may have no tax liability on a particular event, this does not absolve them of the obligation to file the details to the tax authorities. This is quite true. Every individual in receipt of income from a range of sources should file an annual tax return with the Revenue - whether or not that income is liable to tax.

In this case, not only is the rental income not liable to income tax if it is kept below the annual threshold, it is also exempt from PRSI and the health levy, but it should be included on your tax return, as you have done. People should also be aware that if the annual threshold is broken, all the rental income is liable for tax, not just the portion above the threshold.

People looking for a round-up of the tax position with regard to renting property in Ireland should take a look at the Revenue's IT70 leaflet, which covers the area and is available on its website, www.revenue.ie.

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