If I rent out a few rooms in my house under the rent-a-room scheme for the year with the tenants sharing the utility bills with me, does the money I receive for these utilities have to be counted as income for the €14,000 cap?
I would not build utilities into a higher rent as others have found that it encourages waste, especially now with so many people working from home.
Including utility refunds in the cap leaves me with little incentive to rent out a further room, especially with soaring and unpredictable utility costs.
Utilities should not be counted as income. Why not maximise the number of rooms on offer in a housing crisis? I would be grateful if you could clarify my understanding of the rules.
Renting a room or rooms in your home to tenants while you are living there is a useful way for people to defray the cost of their mortgage. And, as long as you meet certain criteria, it can be tax free.
But there are strict rules. Stepping over these boundaries can prove costly.
Primary among these is the limit on how much you can earn. That limit is, as you say, €14,000 and it is absolute. Go to €14,001, and not only will you be taxed on the extra €1, you’ll be taxed on the whole €14,001.
When I say taxed, that includes income tax, social insurance (PRSI) and the universal social charge.
Whether you build the utilities into the rent is a matter for you, and I hear what you are saying about why some homeowners would choose not to. But it is the full amount you receive – including any money you receive to cover the cost of utilities – that is assessed against the €14,000 limit. Functionally, it might be easier to set rents to include utilities at a level you are comfortable will not exceed the financial limit. At least then you know where you stand.
Because if rising utility bills that you intend passing on, in part, to your tenants get to a stage where your annual income from rent and bills exceeds the €14,000 limit, you’re going to be facing liability to a tax bill on the whole amount from Revenue.
And it is up to you to notify Revenue. If you are claiming under the rent-a-room scheme, you are obliged to notify the details to Revenue in an annual tax return even though the income is tax free. Cutting corners on such disclosures is one sure way of putting yourself in the way of trouble with the tax authorities.
Utilities, if charged over and above rent, are not the only things that have to be considered in calculating whether you meet the €14,000 tax-free threshold; the same is true if you are charging for food, laundry, cleaning or any similar household service.
Those are not the only rules. Another central principle is that this is your home, not an extra house that you have available to you. And the relief does not apply to short-term stays under providers like Airbnb where the residents are considered to be guests rather than tenants by the Revenue. In addition, you are precluded from renting to family members or providing accommodation on behalf of your employer.
There are advantages for the homeowners. Apart from the tax-free income, people operating under the rent-a-room scheme do not have to meet the requirements imposed on other landlords. That includes contentious issues such as notice periods, although you’d really hope these were worked out in a harmonious way, not least as you will be living under the same roof.
Also, even if homeowners are on means tested social welfare payments, they will still be able to access rent-a-room without adversely impacting that welfare payment, making it especially helpful to those in limited means struggling with the ongoing cost-of-living squeeze.
It is worth being aware that, under the rules of the scheme, you do not necessarily have to be the owner of the property to claim tax relief. Assuming a tenant has the landlord’s agreement to sublet, they can avail of the scheme too, but not if they are accepting tenants under the Housing Assistance Programme (HAP). In that case, only the homeowner can avail of the scheme.
But unlike normal registered landlords, you are not allowed to offset expenses incurred in maintaining the property against your rental income, with only the net amount being assessed for tax. Under the rent-a-room scheme, the gross amount – everything you receive – is assessed to see if you meet the criteria of the scheme.
If you have particularly high expenses in a given year, it might be worth considering whether or not to opt out of the scheme for that year and assess your tax liability as a normal landlord. There is nothing stopping you doing that, although clearly you will then have to comply with all the other rules governing landlords.
As you say, in our housing crisis, encouraging people to rent out rooms in their homes – especially those empty nesters, whose children have been reared and moved out of the family home to their own places – is one way of trying to help people in need of housing. Only last week, there was a call-out online for anyone who could provide a room for a doctor arriving into the State to help with our separate healthcare crisis.
But as the income earned is tax free, this will always be a trade-off for Government and ministers of finance between the value of the incentive and the need it is addressing. And of course, there is nothing to say that if the limit were raised, homeowners would not simply increase the amount they charge existing tenants rather than making additional rooms available.
The irony, of course, is that in many cases those with the rooms available to rent under the scheme are not financially stressed enough to make the prospect of sharing their homes with others attractive.
Widening the scale of the relief is one way the Government could go in trying to mitigate the housing crisis but it is not a cut and dried solution and it is not one they have opted for this far. And until they do, you’re stuck with the rules that are in place.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
