# Rent a Room Tax Limit



## Louise (28 Sep 2006)

Hi

I'm a FTB and want to rent out my spare room under the rent-a-room scheme. According to the Revenue website, if I charge more than €7,620 per year, all of the rent is subject to income tax. However, if I go above this limit is there also a stamp duty clawback or is the limit for the clawback higher?

Thanks
Louise


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## liteweight (28 Sep 2006)

The clawback is only if you rent out the entire apartment AFAIK. You'll be liable to income tax though. If you pay at the higher rate, it might be worth considering cutting the rent to stay in line with the rent a room scheme. For example if you charge 8K a year and pay 42% tax, you'd be better to charge circa 7K and pay no tax. Crunch some numbers.


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## ClubMan (28 Sep 2006)

liteweight said:


> The clawback is only if you rent out the entire apartment AFAIK.


Are you sure about that? I don't know the answer myself but would be careful about assuming that no _SD _clawback applies.


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## Satanta (28 Sep 2006)

Again, not 100% on this, but reading revenue docs on it, it clearly states that "any rent other than RaRS" requires SD clawback. 

Should the rent slip over the threshold, I'd doubt it would be RaRS and assume that the clawback would apply.


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## ClubMan (28 Sep 2006)

Satanta said:


> Should the rent slip over the threshold, I'd doubt it would be RaRS


There is no doubt that over the €7,620 means that it's not _RaRS _income and is treated as normal rental income.


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## CCOVICH (28 Sep 2006)

It's not really clear.

The Rent a Room Scheme is outlined .

The €7,620 is an income tax exempt threshold, I don't know if this has any impact on stamp duty.

My interpretation of the rules on OASIS is that you no longer are availaing of the Rent a Room Scheme when you no longer occupy the property.

The rent charged is irrelevant for stamp duty purposes.

This is my own interpretation.


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## ClubMan (28 Sep 2006)

CCOVICH said:


> My interpretation of the rules on OASIS is that you no longer are availaing of the Rent a Room Scheme when you no longer occupy the property.


Even if you still live there once the income exceeds the €7,620 threshold the _RaRS _is irrelevant and you are a rental property investor. I agree that the _SD_ threshold issue in this situation is not clear though. Not sure what it means for _CGT _either since the propery is now a dual rental investment property *and *a _PPR_. Ultimately, if the rental income is only marginally above €7,620 then it might make more sense to reduce the rent to the threshold and avail of the _RaRS_.


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## liteweight (28 Sep 2006)

ClubMan said:


> Are you sure about that? I don't know the answer myself but would be careful about assuming that no _SD _clawback applies.



That's my understanding of it. If this was not the case then a huge sector would be in trouble e.g. householders renting to students etc. In the above case the OP is still using the place as a PPR. Renting a room, at whatever cost, surely can't negate this?


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## CCOVICH (28 Sep 2006)

ClubMan said:


> Even if you still live there once the income exceeds the €7,620 threshold the _RaRS _is irrelevant and you are a rental property investor.


 
Is it not the case that rental income over and above the threshold is liable for tax, but the first €7,620 is still exempt?

_The total (gross) rent you receive (which includes sums the tenant pays for food, laundry or similar goods and services) cannot exceed 7,620 euro (or 5,587 euro for tax year 2001). If you receive rental income over and above this amount, you are then liable for tax at the standard rate. _

_Rental income achieved from renting a room(s) in your home is exempt from tax up to a maximum limit of 7,620 euro _


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## ClubMan (28 Sep 2006)

CCOVICH said:


> Is it not the case that rental income over and above the threshold is liable for tax, but the first €7,620 is still exempt?


Definitely not.


> _The total (gross) rent you receive (which includes sums the tenant pays for food, laundry or similar goods and services) cannot exceed 7,620 euro (or 5,587 euro for tax year 2001). If you receive rental income over and above this amount, you are then liable for tax at the standard rate. _
> 
> _Rental income achieved from renting a room(s) in your home is exempt from tax up to a maximum limit of 7,620 euro _


The quote could be a bit more explicit but the net effect is that income up to €7,620 is tax free but above that then the _RaRS _no longer applies and *all *rental income is assessable for income tax as normal.


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## CCOVICH (28 Sep 2006)

ClubMan said:


> Definitely not.
> 
> Where does that come from because it's wrong.


 
OASIS, as I linked to above.


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## ClubMan (28 Sep 2006)

Sorry - I edited my post to correct the "wrong" comment. The quote is correct but does not mean that only income over the €7,620 limit is taxable.


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## liteweight (28 Sep 2006)

All of the rental is liable once you go over the threshold.


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## CCOVICH (28 Sep 2006)

From this [broken link removed](in relation to clawback of stamp duty)

_Under the rent-a-room scheme the_
_purchaser or the person in right of_
_the purchaser must continue to_
_occupy the property as his principal_
_place of residence while deriving rent_
_from the letting of part of the_
_property._​ 
So it certainly appears that the amount of rent charged is not relevant for stamp duty purposes.​ 
The briefing in question has more to say on the Rent a Room Scheme/Relief​ 
_The total amounts_
_received *cannot exceed* £6,000 per_
_annum (£4,440 for the year 2001)._​

(My emphasis)​ 

*Does the letting of an entire*

*house qualify?*

No. We have been asked for a view
on situations where a house owner
lets an entire house. The relief
applies to the letting of a room or
rooms in a “qualifying residence”. It
does not apply to the letting of an
entire residence. Also, the residence
must be occupied by the person
receiving the rent as his or her sole or
main residence. Where an entire
house is let, this condition is not
satisfied.​ 
​


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## liteweight (28 Sep 2006)

Well that clears that one up CCOVCH.


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## ClubMan (28 Sep 2006)

Sorry - I'm confused. What exactly does it clear up?


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## liteweight (28 Sep 2006)

Well to me, it appears that there is no stamp duty clawback if an owner occupier rents a room in his/her house for a greater amount than the RaR allowance. It also clears up the situation where (asked by many on AAM) an owner rents rooms in his PPR, but lives down in Wexford with Mammy and still feels the house in Dublin is his PPR as long as he charges 7620 per annum. This is not the case and s/he must pay the clawback. Am I right??


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## ClubMan (28 Sep 2006)

liteweight said:


> Well to me, it appears that there is no stamp duty clawback if an owner occupier rents a room in his/her house for a greater amount than the RaR allowance.


I'm still not sure that this is proven by the above.


> It also clears up the situation where (asked by many on AAM) an owner rents rooms in his PPR, but lives down in Wexford with Mammy and still feels the house in Dublin is his PPR as long as he charges 7620 per annum. This is not the case and s/he must pay the clawback. Am I right??


Yes - if the individual is not living there then it's not their _PPR _so thay can't avail of the _RaRS_. If they bought the property as a _PPR _originally and rent it out then a clawback of _SD _definitely applies.


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## liteweight (28 Sep 2006)

I can't supply the link but if you click on CCOVCH's Revenue link above.....page 19 of 32 clearly states that when a person rents, other than under the Rent a Room Scheme, there will be a clawback of stamp duty. By implication there is no clawback if you operate under the scheme.

When you read the guidelines on the Rent a Room Scheme, it doesn't put a limit on the rental amount, it only stipulates that if rent is 7620 it will be tax free.


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## CCOVICH (29 Sep 2006)

I wouldn't assume that anything has been cleared up to be honest.

It appears that you can charge rent in excess of €7,620 and not be liable for Stamp Duty clawback, bit that is only an interpretation on my part.

The OASIS info I linked/quoted before seems confusing/incomplete to me, but the Revenue briefing clarifies matters wrt to the income tax treatment of rent in excess of €7,620 (but I think I was the only one confused on that score).


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## liteweight (29 Sep 2006)

CCOVICH said:


> I wouldn't assume that anything has been cleared up to be honest.
> 
> It appears that you can charge rent in excess of €7,620 and not be liable for Stamp Duty clawback, bit that is only an interpretation on my part.
> 
> The OASIS info I linked/quoted before seems confusing/incomplete to me, but the Revenue briefing clarifies matters wrt to the income tax treatment of rent in excess of €7,620 (but I think I was the only one confused on that score).



I sometimes find Oasis confusing too and always double check on the Revenue site. If you think it appears that you can charge rent in excess of the threshold, without incurring a clawback, and I, independently think the same thing, then chances are we are correct!

However, when it comes to Revenue, I ask once, check it out myself at least twice, and then ring an accountant! Even they seem to have differing opinions when it comes to Revenue. As I said before, I can't see it being feasible to look for stamp duty clawback when renting a room in one's house. This would mean that taking in a lodger denies one the right to call it one's PPR!


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## ClubMan (29 Sep 2006)

liteweight said:


> As I said before, I can't see it being feasible to look for stamp duty clawback when renting a room in one's house. This would mean that taking in a lodger denies one the right to call it one's PPR!


I don't see how it *might *not be feasible (in part or full) where an individual lives in the house and collects more rent than allowed under the _RaRS_. However I suspect that a non _RaRS _live-in landlord is not liable for the clawback but I don't know either. For some reason this image keeps coming to mind:


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## Newby (28 Feb 2007)

Sorry Guys, just after reading this one recently and thought i'd ressurect it to add in my few cents. From what I can see there are 3 main considerations in the OP original statement (and in most of the "I'm renting a room in my house" queries)

1. Income Tax - Does the Landlord have to pay tax on the income it receives from the tenant?
2. Stamp Duty - Does the Landlord have to clawback any relief previously claimed on the purchase of the property?
3. Capital Gains Tax - Does the Landlord have to pay CGT on ultimate disposal of the property?

In relation to the points my take on it (and it is just an opinion) is as follows:

1 - If you reside in the house as your main or only residence (be it sofa, or spare room) and  you derive rent of less than €7,620 from the letting then you will not pay income tax on the rent derived. If breach either or those conditions then you are liable to income tax.

2 - If you reside in the house as your only or principal place of residence (again, sofa or spare room) then you do not trigger a clawback to Stamp Duty. There is no monetary limit mentioned in the clawback section of the Stamp Acts. 

3 - If you live in your own house and rent out a room in that house the situation is not so clear. The PPR section of the Acts tells us that where a house is used for a business or trade then any gain on the sale of such a property will be apportioned between the propertion of the house that was used for the business or trade. Such a proportion will be taxable and the remainder exempt. Whether or not a person letting out a room under the Rent a Room Scheme is carrying on a business or trade is debateable (but very plausible) however it would seem very harsh if Revenue deemed the letting of 1 room to be a trade. Where someone is living in and managing a B&B or hostel type house then it appears pretty obvious that there is a trade and an apportionment of the gain on a PPR used for such purposes would be appropriate.

If it were thought that renting a room or rooms in a house is a business or trade then the apportionment must be done. This is an incredibly difficult thing to do (what portion of a house is a room, how do you determine what proportion of the kitchen /sitting room related to the business). Usually  you make a best guess and inform Revenue of what you think the relevant gain should be (maybe even ticking an expression of doubt on the tax return).

My thoughts are that if you rent 1 room in a large house I think it is not a trade/business. If you rent out all rooms and live on the sofa I think it is a trade/business. In between you call Revenue and see what they think.


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## Clarkey (28 Feb 2007)

The Rent a Room scheme allows for €7,620 to be obtained in rent tax free and no more. The Rent a Room scheme also allows for CGT and Stamp Duty exemptions to remain intact while receiving rent up to €7,620. If rent exceeds €7,620 the Rent a Room scheme does not apply. Therefore CGT & Stamp Duty exemptions do not apply. If you rent out a room or rooms in your house and the rent exceeds rent a room limits then you must pay stamp duty clawback and will be liable for cgt on a portion of the gain. Quote below from revenue website:

*Clawback *

A clawback arises if *rent is obtained from the letting of the house* or apartment for a period of 5 years from the date of the conveyance or transfer, *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. A clawback will not arise where the property is sold to an unrelated third party during the 5-year period


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## Satanta (28 Feb 2007)

Clarkey said:


> If rent exceeds €7,620 the Rent a Room scheme does not apply


Not suggesting for a second you're wrong, but where is this information coming from? 

Any of the revenue documents, that I have seen at least, state that if you go over the €7,620 threshold that the income tax exemption no longer applies, but I've never seen it mentioned that the RaRS does not apply [and the associated benefits for CGT/SD] (nor have I seen it mentioned that it does apply).

I had always thought it was a grey area, but if you can make it a little more black and white that'd be great.


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## Clarkey (28 Feb 2007)

Satanta said:


> Not suggesting for a second you're wrong, but where is this information coming from?
> 
> Any of the revenue documents, that I have seen at least, state that if you go over the €7,620 threshold that the income tax exemption no longer applies, but I've never seen it mentioned that the RaRS does not apply [and the associated benefits for CGT/SD] (nor have I seen it mentioned that it does apply).
> 
> I had always thought it was a grey area, but if you can make it a little more black and white that'd be great.


 
Rent-a-Room Relief 
Where a room (or rooms) in a person’s sole or main residence is (are) let as residential accommodation, *gross annual rental income of up to €7,620 is exempt from tax*. Relief in respect of mortgage interest relief is not affected. *The relevant Capital Gains Tax/Stamp Duty provisions are also not affected*. For more information see *Leaflet IT 70.*


From Revenue website

*Clawback *

*A clawback arises if rent is obtained* from the letting of the house or apartment for a period of 5 years from the date of the conveyance or transfer, *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. A clawback will not arise where the property is sold to an unrelated third party during the 5-year period

From Revenue website

The Rent a Room scheme and the income tax emption you mention above are one and the same. If the rent exceeds the relevant limit (€7,620) then the scheme does not apply and normal rules apply as an investor. I was on to local tax office here this morning to confirm this


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## ubiquitous (28 Feb 2007)

It can be dangerous to rely on Revenue guides and website content for specific guidance where an issue is unclear or open to interpretation. By their very nature, these guides can be simplistic and sometimes their contents are mutually contradictory. Its generally best to get proper professional advice in all cases where there any level of doubt, unless the potential tax exposure is very small.


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## alfabeta (28 Feb 2007)

The following would be my thoughts, any comments welcome…

Section 216A (RaR scheme) was introduced as in Finance Act 2001.  Within this section it referred that exemption and relief would still apply from Section 244 (Mortgage Interest) & 604 (PPR relief) of the Principle Act.  It is however clear that the exemption can only be claimed within the limits specified of €7620. 

Within the same Finance Act, Section 91/92 of the Stamp Act was amended to allow no clawback of stamp duty where rent is derived from PPR where owner is in occupation.  It did not specify the RaR scheme with the actual text nor did it specify an amount.  The Section of the Finance Act however was classified as Rent a Room, etc.  Totally open for argument and a good argument with the Revenue is always interesting.    The Revenue, if their booklets are anything to go by, and I tend to use leglisation rather than Revenue material, have taken the opinion that Stamp Duty is subject to clawback if rent derived outside the RaR scheme albeit not in a statement of practice.  

Section 604 Principle Private Residency relief additionally does not refer to RaR however Sec 7 possibly implies a get out clause for them, which states “there have been changes as regards the use of part of the dwelling house for the purpose of a trade, business or profession or for any other purpose” then agreement would have to be obtained from an Inspector.


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