Q&A

Your property questions answered

What tax must I pay if over rent-a-room threshold?

Two years ago as a first-time buyer I bought a new two-bedroom apartment and have rented out a bedroom. It has no tax implications for me because it was under the rent-a-room scheme (as my mortgage broker at the time advised). I intend to take a sabbatical from work to do some travel for a year or so and will then rent the other room out under the same scheme.

The rent from one room is €4,800 per year; renting out the other room will yield a little more because of the en suite. As this will push me over the rent-a-room threshold, how is it handled in relation to tax?

The rent-a-room scheme allows you to rent a room in your principal private residence for rental income of up to €7,620. The problem with your plan is that you will not be just renting two rooms, you will in effect be renting out the entire apartment and so will change its status to an investment property.

The very attractive rules of the rent-a-room scheme will no longer apply. Furthermore it will have implications for you in terms of mortgage interest relief, capital gains tax, income tax and stamp duty clawback.

As a first-time buyer you were exempt from stamp duty for owner occupation - however a clawback arises if rent is obtained from the letting of the house, other than under the rent-a-room scheme.

The clawback amounts to the difference between the higher stamp duty rates and the duty paid and it becomes payable on the date that rent is first received from the property.

Is agent's advice to drop price €25,000 reasonable?

Our house has been on the market since last November and for several reasons we now absolutely have to sell. It was on the market for €405,000 (to be honest we wanted more) then we pulled it back over the past few months to €390,000.

There is still little interest. Now our agent has suggested a further drop to €380,000 which as you can see is a massive drop of €25,000.

I have not read any reports to suggest that such a drop is reasonable. Is it?

Your agent is - or certainly should be - acting on knowledge of the housing market in your particular area. He also undoubtedly has an eye on the stamp duty bands - €381,000 is a key threshold when it comes to stamp duty; below that a first-time buyer buying your house will pay a rate of 3 per cent while other buyers will pay 6 per cent.

Once the price goes above €381,001 a first-time buyer will pay 6 per cent, while others will pay 7.5 per cent. Not having any details of your house or even its location, it's hard to judge, but it might be in reach of first-time buyers. Have there been any new developments in your area where first-time buyers would be able to buy a house similar to yours without paying any stamp duty? It's these sort of factors, as well as the general cooling off in the market, that your agent is considering when suggesting the price drop and these are factors you should take into account, particularly if you want to clinch a deal.

Send your queries to Property Questions, The Irish Times, The Irish Times Building, 24-28 Tara Street, Dublin 2 or email propertyquestions@irish-times.ie. Unfortunately, it is not possible to respond to all questions. The above is a representative sample of queries received. This column is a readers' service and is not intended to replace professional advice. No individual correspondence will be entered into.