# rent a room tax



## ronaldo1 (23 Oct 2006)

*rent a room scheme taxiation*

Hi there,

I'm looking for some advice about the rent a room scheme.

I have a 3 bed appartment and it is my ppr. I rented it out to two tennants in July 04 - they have not asked for rent relief. I have the same tennants since. My rental income for 04 was €5160. This is under the rent a room scheme limit of €7620.  My rental income for 05 was €10320 - I was unaware until recently that I had to fill out a self assessment income tax return - therefore I have done no returns and paid no tax. This year I'm doing returns for 04 and 05. For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental rincome as rent a room scheme for 05 as €7620.


----------



## ronaldo1 (23 Oct 2006)

Had this in the wrong forum earlier!!

Hi there,

I'm looking for some advice about the rent a room scheme.

I have a 3 bed appartment and it is my ppr. I rented it out to two tennants in July 04 - they have not asked for rent relief. I have the same tennants since. My rental income for 04 was €5160. This is under the rent a room scheme limit of €7620. My rental income for 05 was €10320 - I was unaware until recently that I had to fill out a self assessment income tax return - therefore I have done no returns and paid no tax. This year I'm doing returns for 04 and 05. For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental rincome as rent a room scheme for 05 as €7620.


----------



## ClubMan (23 Oct 2006)

*Re: rent a room scheme taxiation*



ronaldo1 said:


> My rental income for 05 was €10320 - I was unaware until recently that I had to fill out a self assessment income tax return - therefore I have done no returns and paid no tax. This year I'm doing returns for 04 and 05. For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental rincome as rent a room scheme for 05 as €7620.


I suspect that you cannot effect such a refund in order to get back into the rent a room limit but I could be wrong. Probably best to ask _Revenue_, or better still, get independent professional advice.


----------



## serotoninsid (23 Oct 2006)

*Re: rent a room scheme taxiation*



ronaldo1 said:


> I have a 3 bed appartment and it is my ppr. I rented it out to two tennants in July 04 - they have not asked for rent relief. I have the same tennants since. My rental income for 04 was €5160. This is under the rent a room scheme limit of €7620.  My rental income for 05 was €10320


Did you buy your appartment within the last five years and if so, did you not have to pay stamp duty on it because its your ppr?  If so, the revenue will be clawing back the stamp duty if you exceed the 'rent a room' tax exempt earnings of 7,600 euro p.a.  If you exceed this figure in a calendar year, you will be classed as an investor.


ronaldo1 said:


> they have not asked for rent relief.


Proceed with caution.  They don't have to ask!  The revenue form for rent relief asks for the landlords name/address/pps - but they dont necessarily have to supply the pps. Revenue will be quite happy to dig this out themselves.
I suppose if your also living there, you can gauge (but cant be sure..) if the people concerned are likely to be organised enough to apply for this relief (bare in mind they can also do so retrospectively - up to 4 years in arrears i think).



ronaldo1 said:


> For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental rincome as rent a room scheme for 05 as €7620.


This has been discussed/suggested in a previous aam threads on the subject (run a search).  Have you been issuing receipts to your 'tenants'?


----------



## ronaldo1 (23 Oct 2006)

I haven't issued any reciepts to my tennants. One pays by dd and the other by cash.

I bought the appt in 02 and didn't pay any stamp duty as i was a first time buyer. However I have to keep the appt as my ppr for 5 yrs otherwise a stamp duty clawback will apply.

Just to summarise you comments: 
If I exceed the rent a room relief of €7620 in the year I am no longer classified under rent a room relief but I am classified as an investor. Once classified as an investor I will be eligible for stamp duty clawback. Am I correct?


----------



## liteweight (23 Oct 2006)

I don't think you're liable for stamp duty clawback. You're just renting out rooms in your PPR. The clawback only applies if you move out before the 5 years is up, and rent the property in it's entirety. Because you've exceeded the RARS allowance you are liable to tax on the total rental less any expenses.


----------



## ronaldo1 (23 Oct 2006)

Thanks. What do you think of my proposal below. Spoke to revenue about it and was advised its ok::

For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental income as rent a room scheme for 05 as €7620.


----------



## liteweight (23 Oct 2006)

Obviously it's cheaper for you to do it this way. I'm surprised Rev. said it was ok to be honest. Sometimes, as can be seen on other threads, they're not accurate in advice given over the phone. If your tenants have been claiming relief, I suppose it puts the ball back into their court i.e. tell Rev. they had a refund.


----------



## ubiquitous (23 Oct 2006)

liteweight said:


> The clawback only applies if you move out before the 5 years is up, and rent the property in it's entirety.



Can you provide any evidence to support this statement. For the record, I don't believe you are correct.


----------



## Howitzer (23 Oct 2006)

liteweight said:


> I don't think you're liable for stamp duty clawback. You're just renting out rooms in your PPR. The clawback only applies if you move out before the 5 years is up, and rent the property in it's entirety. Because you've exceeded the RARS allowance you are liable to tax on the total rental less any expenses.





ubiquitous said:


> Can you provide any evidence to support this statement. For the record, I don't believe you are correct.


 
Err, no. The OP was correct in his original assertion that once you go above the rent a room threshold you are then classed as an investor, and as such are liable to all the appropriate taxs - tax on rental income, stamp clawback and eventual CGT liability.

Though I would also agree with the advice to the OP from Revenue that if he refunded the appropriate amount he'd be ok. I think it's only ok though cos he's dealing with the tax year 05. If it was for 04 and earlier he'd be snookered. 

Wish I'd that kind of landlord that rings you up after a couple of years to give a cheque for a couple of grand.


----------



## liteweight (23 Oct 2006)

Really? So anyone who rents out rooms in their home are classed as investors and would have to pay the clawback, if rent goes over 7620? What about those homeowners who rent to students and language schools? They have to own property for longer than 5 years? I genuinely thought that it was only if you rented the house/apt in it's entirety and did not reside there. I even checked this out with Revenue and was assured that this was the case! Any links so that I can read up on it?


----------



## liteweight (23 Oct 2006)

ubiquitous said:


> Can you provide any evidence to support this statement. For the record, I don't believe you are correct.



No ubiquitous, my daughter is thinking of buying an apartment and renting out a room. We checked it out with Revenue and I was told that the clawback only applied if property was rented in it's entirety. The only thing they pointed out was that if she went over 7620 in income from rental, then the whole amount would become liable for tax. They said clawback would not be due.


----------



## Satanta (23 Oct 2006)

liteweight said:


> I even checked this out with Revenue and was assured that this was the case! Any links so that I can read up on it?


This debate arrose on AAM before. 

Revenue state that any rent recieved other than under the "Rent a Room Scheme" result in a stamp duty clawback. 

As part of the Rent a Room Scheme rents under a certain threshold remain tax free. Does that mean that rents above that threshold are under RaRS but without the tax benefits??? Don't think anyone has ever fully cleared this one up, at least not to my knowledge.


----------



## Howitzer (23 Oct 2006)

Satanta said:


> This debate arrose on AAM before.
> 
> Revenue state that any rent recieved other than under the "Rent a Room Scheme" result in a stamp duty clawback.
> 
> As part of the Rent a Room Scheme rents under a certain threshold remain tax free. Does that mean that rents above that threshold are under RaRS but without the tax benefits??? Don't think anyone has ever fully cleared this one up, at least not to my knowledge.


 
Indeed. These scenarios arise every few years as the original legislation is very loose and indexation is never applied to the limits.

If you fancy taking a risk then go for it but if I was the OP I'd just refund the cash to the tenants rather than taking a chance which could result in a significent tax liability.


----------



## liteweight (23 Oct 2006)

Satanta said:


> As part of the Rent a Room Scheme rents under a certain threshold remain tax free. Does that mean that rents above that threshold are under RaRS but without the tax benefits??? Don't think anyone has ever fully cleared this one up, at least not to my knowledge.



This is the information I was given...still renting a room but without the tax benefits....no clawback, no capital gains etc. just income tax on higher rental?


----------



## ubiquitous (23 Oct 2006)

liteweight said:


> No ubiquitous, my daughter is thinking of buying an apartment and renting out a room. We checked it out with Revenue and I was told that the clawback only applied if property was rented in it's entirety. The only thing they pointed out was that if she went over 7620 in income from rental, then the whole amount would become liable for tax. They said clawback would not be due.



A good example of the perils of depending on Revenue "advice"...


----------



## Satanta (23 Oct 2006)

liteweight said:


> This is the information I was given.


I'm not saying it's wrong! I'm just questioning it. No documents, which I've read, clearly state this is the case. 

It can easily be taken either way depending on your reading of the documents. (In fact, I'm not even sure which side of the fence I fall on anymore)

It might be worth requesting it in writing from someone in Revenue (more chance they check it out fully) and ask them to confirm where this "information" is coming from (look for the relevant document, we all know about revenue "advice"!).


----------



## liteweight (23 Oct 2006)

Satanta said:


> This debate arrose on AAM before.
> 
> Revenue state that any rent recieved other than under the "Rent a Room Scheme" result in a stamp duty clawback.



Thanks for that Satanta, I'd forgotten about the thread....it was the reason I rang Revenue to check it out! I think I'll look for it in writing and let you know what the reply is. A lot of people will be affected if the advice given by Revenue is not correct.


----------



## Satanta (23 Oct 2006)

liteweight said:


> A lot of people will be affected if the advice given by Revenue is not correct.


To be fair (and this has arose on AAM numerous times too) Revenue aren't there to give advice.

The problem is that most people when talking to revenue don't believe they are getting advice, they think they are getting information and fact! (which is what they should be getting!)

Given the potential costs, people should be very careful what they believe when talking to Revenue staff who can (and do!) get it wrong (personally I think it should be revenues responsibility to ensure the staff don't give out the incorrect information, be it in the guise of advice or information).


----------



## ronaldo1 (23 Oct 2006)

In relation to my orgional post:...........

_Hi there,

I'm looking for some advice about the rent a room scheme.

I have a 3 bed appartment and it is my ppr. I rented it out to two tennants in July 04 - they have not asked for rent relief. I have the same tennants since. My rental income for 04 was €5160. This is under the rent a room scheme limit of €7620. My rental income for 05 was €10320 - I was unaware until recently that I had to fill out a self assessment income tax return - therefore I have done no returns and paid no tax. This year I'm doing returns for 04 and 05. For 05 my tax liability is €10320 x 42% = €4334.4, however can I write a cheque to my tennants for €10320 - €7620 = €2700 i.e €1350 ea? This would bring me back in line for the rent a room scheme for 05 and hence have no tax to pay. I would then declare rental rincome as rent a room scheme for 05 as €7620._

.............i'm now clear that I can write a cheque for €2700 (€1350 each to my two tennants) giving back rent for 05 to bring me under the rent a room limit of €7620 and hence have no tax liability only to declare the €7620 on my tax return. I will also keep the cheque as proof that I've paid it if revenue ask for it or carried out an audit or even if the tennants applied for rent relief.

However can I jump back to my 2004 situation. I started renting out my appt in July (6mts for 04) and recieved €5160 in rent - this is under the rent a room limit by €2460. Can I now in theory back date a rental increase for 04 to maximise my RaRS limit i.e €7620. Hence I don't know my tennants as much overall. I would owe them €1350 for 05 and they owe me €1230 for 04. Balance I owe them is €120ea. Is this possible. ANain I ran this by Revenue and the "advise" I got would be that this is ok. All that would appear on my return for 04 is €7620 and the same for 05. Should I ask revenue for this in writing or get an accountants or tax advisors advice.


----------



## Howitzer (23 Oct 2006)

ronaldo1 said:


> However can I jump back to my 2004 situation. I started renting out my appt in July (6mts for 04) and recieved €5160 in rent - this is under the rent a room limit by €2460. Can I now in theory back date a rental increase for 04 to maximise my RaRS limit i.e €7620. Hence I don't know my tennants as much overall. I would owe them €1350 for 05 and they owe me €1230 for 04. Balance I owe them is €120ea. Is this possible. ANain I ran this by Revenue and the "advise" I got would be that this is ok. All that would appear on my return for 04 is €7620 and the same for 05. Should I ask revenue for this in writing or get an accountants or tax advisors advice.


 
This looks a rocky road to go down. Your return for 04 is overdue. It should have been made last October and if it had been made then you would have placed a value of E5160 on your 04 rental income. There isn't a credit associated with the rent a room scheme that you can carry forward. 

A lot of the time the advice you get from Revenue will be the advice you want to get off them. This can come about through asking leading questions whereby you have, deliberately or not, left out relevant details. Or the person on the other end may simply not be qualified enough to give you the right answer. You could be talking to a 18 year straight out of doing the Leaving cert when you should be spending a few quid on getting a qualified professional to give you the correct answer, not the answer you want to hear.


----------



## Satanta (23 Oct 2006)

Howitzer said:


> This looks a rocky road to go.


Thats putting it mildly!
I think that has to be the worst "advice" I've ever seen from Revenue! They are suggesting you commit tax evasion! 

Why not back date the rent to 2003 and then you can write some of it off your liability for next year? It's basically the same thing.

Revenue seem to allow late returns on RaRS (previous thread on rent relief when paying parents) but now to say you can backdate to use up unused thresholds is simply wrong (and illegal). It may never get caught (you probably would get away with it as proving the exact figures recieved would be difficult) but that really shouldn't mean that a member of Revenue staff should suggest it's ok.

Not sure how you may be able to get any of that in writing.


----------



## ubiquitous (23 Oct 2006)

ronaldo1 said:


> .............i'm now clear that I can write a cheque for €2700 (€1350 each to my two tennants) giving back rent for 05 to bring me under the rent a room limit of €7620 and hence have no tax liability only to declare the €7620 on my tax return. I will also keep the cheque as proof that I've paid it if revenue ask for it or carried out an audit or even if the tennants applied for rent relief.



This, too, appears to be a crazy idea. Effectively what you are doing is throwing €2700 to your tenants and leaving yourself as a sitting duck to be hammered by Revenue as a tax defaulter if they ever audit you or otherwise come looking for you. Copies of cheques paid out to tenants will hardly wash with Revenue. They are usually suspicious of "creative" transactions and they would not be slow to disallow any such "artificial" transaction designed to avoid tax. You would be lucky to escape a comprehensive audit of all your finances if you are found trying to mess them around like this. You could easily end up being prosecuted.


----------



## liteweight (23 Oct 2006)

It's becoming increasingly obvious that Revenue customer service staff need more training. I know we shouldn't look to them for financial advice but information on their own service is a different matter. If I rang any service provider for information I'd expect them to know their business inside out.


----------



## ubiquitous (24 Oct 2006)

liteweight said:


> It's becoming increasingly obvious that Revenue customer service staff need more training. I know we shouldn't look to them for financial advice but information on their own service is a different matter. If I rang any service provider for information I'd expect them to know their business inside out.



Problem is that our tax system is based on extensive, complicated and often subtle legislation. For example, the copy of the Direct Tax Acts sitting on my desk runs to some 2,560 pages. One particular Capital Gains Tax textbook which I use regularly runs to some 1,200 pages. Another textbook solely dealing with income tax runs to 2,283 pages. You will not cover much of that material in a standard employee training course.

It is impossible for the Revenue to provide meaningful telephone support to the public on all except the most basic of tax issues. Only the most experienced experts will be familiar with all aspects. It would be an absolute waste of scarce expertise to have the best & brightest in the Revenue answering the phones.


----------



## ClubMan (24 Oct 2006)

ubiquitous said:


> It is impossible for the Revenue to provide meaningful telephone support to the public on all except the most basic of tax issues.


Unfortunately, from experience, in some cases they don't even manage that. But I agree with you on the general gist of your post.


----------



## Satanta (24 Oct 2006)

Again, fully agree with the post ubiquitous, but couldn't the Revenue staff give an answer like this when asked questions they aren't 100% sure of (so yes, every question).


----------



## asdfg (24 Oct 2006)

> For 05 my tax liability is €10320 x 42% = €4334.4


 
Are you sure this is correct. You can make a number of deductions from the rental income to arrive at a profit on rental income. The main one being interest paid on the mortgage (not sure how much you can deduct if you are also living in it.)
You have to be registered with the PRTB in order to claim Mortgage Interest Relief. This only came into effect recently so it may not apply to renral income in 2005 
See [broken link removed] especially 
What expenses can be claimed? 
What expenses can be claimed for Wear and Tear?
What if a premises is only partly let?
Example rent account


----------



## liteweight (24 Oct 2006)

I agree ubiquitous, that not all staff can be fully conversant with all tax matters. However, when I ring, I'm usually transferred to someone which gives me the impression that I'm being put on to someone who knows. What's Joe Bloggs supposed to do. It's too expensive to run to a tax consultant with every little thing, not all accountants agree on tax matters and, in any event , tax matters are our own affair so Joe Bloggs can't blame the accountant. I'm sure a lot of genuine mistakes are being made out there but unfortunately that's no excuse either so Joe Bloggs often ends up paying penalties.

Can't Revenue ensure that staff are trained in their particular area? Obviously if someone rings with a complicated question, staff should suggest they visit a consultant. However, a simple question like will I have to pay clawback if I go over the RARS allowance, should surely have been dealt with umpteen times before and the answer emailed down through the ranks.


----------



## ubiquitous (24 Oct 2006)

I agree. However, I'm not convinced that extra training for staff is going to solve the problem, as you suggested above - not when the legislation alone runs to over 2,500 pages. In that context I don't think its reasonable to expect the Revenue staff to know the tax code, or even specific areas, inside out. It would take years to train someone to expert level on CGT for example.

It would probably be better for everyone concerned if Revenue refused point blank to deal with queries from the public and simply referred callers to publications on their website. Whether this would be politically acceptable is open to question.


----------



## liteweight (26 Oct 2006)

ubiquitous said:


> It would probably be better for everyone concerned if Revenue refused point blank to deal with queries from the public and simply referred callers to publications on their website. Whether this would be politically acceptable is open to question.



I think this would go down like a lead balloon! After all, if staff in Revenue can't explain their publications, how can we expect the general public to understand?


----------



## Satanta (26 Oct 2006)

liteweight said:


> After all, if staff in Revenue can't explain their publications, how can we expect the general public to understand?


I'm failing to see any difference with the current system to be honest


----------



## Aidan 2232 (26 Oct 2006)

Re Ronaldo's queries

2005 - I don't think you should write that cheque. You had an agreement for rent evidenced by the monthly payments and I don't see any reason why Revenue should accept a payment back to the tenants as a reduction in your rental income.  If they audit your return in 3 years time and raise an assessment for the tax due who is to say that you'll be able to get the money back from the tenants.

2004 - Echo comments made by ubiquitous, crazy suggestion.


----------

