Rent a Room Relief: let the spare bedroom pay the mortgage

People can earn tax-free income by renting a room in their home. How does the scheme work?

From next January, the Rent a Room relief scheme will allow people to earn up to €14,000 a year tax free by renting out a room (the threshold is currently €12,000). That is €1,166 a month of income on which no tax need be paid.

The proviso is that you must be living in the home and it must be your principal residence. It counts as an informal arrangement and so you do not need to register as a landlord. Even so, it is helpful to have a written agreement between you and the tenant: this can include the start date of tenancy, how and when the rent should be paid, and whether a deposit is being held.

If you stray over the allowance, in other words, if you earn more than €14,000 from renting a room – and that includes money for renovations, furniture, painting and so on – you may be liable for tax on the full amount. If you sell your home, the scheme will not affect your exemption for capital gains tax. You do not need to own your home: if the landlord gives permission, you can avail of the Rent a Room relief.

Many people use the scheme to house students from Ireland and abroad during term time. People relocating to Ireland for work can also like staying with families and if they know no one in a country it can be a good way to give them time to acclimatise and make friends and maybe find flatmates. Breakfast is often provided, as well as use of cooking facilities.

At The Irish Times Home and Design Theatre at the Ideal Home exhibition at the bank holiday weekend, reader and accountant Maireád Corr talked about finding her tenants/guests through homestay.com. The Irish start-up (established in 2013) puts guests and renters in touch with each other through a website. Corr uses it regularly for the two rooms in her attic.

Homestay now has 50,000 renters in 150 countries. Guests are charged a booking fee of 15 per cent and then pay the renter direct when they arrive. People with a room provide information about themselves and photographs of their home on the website. Guests can contact the owner directly with questions and there is a free video-call facility on the site so they can talk to each other. Corr said, “I take up the computer and walk around the house showing interested guests what it is like.

“We are a family of six and it is important that everyone gets on. My children love having people in the house to talk to. They can count to 10 in 10 languages and sing happy birthday in four.

“I feel that it takes about two weeks for everyone to settle in and get used to each other. We have been lucky that all our guests so far have enjoyed staying with us. But I do take some time for us to get to know each other in advance by email and video, so there are no surprises.” Corr’s motivation for taking in guests initially was to fund an attic conversion. Now she’s intent on paying off the mortgage as soon as possible.

Accountant Dermot Kane of TaxAssist accountants noted that all Airbnb income is taxable.

New homes buyers may not yet be fully attuned to the advantages of the scheme. According to Ken MacDonald of Hooke & MacDonald, his agency does not get many requests from potential eyeing an extra bedroom as a nice little earner. “It would be a good way to free the excess accommodation in the market if people took it on board, and it would reduce their costs,” he said.

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