FTB Renting rooms in PPR - Stamp Duty Clawback level? Tax Implications?

[Faltermeyer]

I'm currently looking into buying a house.

I am a first time buyer and would be living in the house.

To help qualify for, and pay, the mortgage I will be renting out 2 of the 3 rooms.

I have heard a little about the "Rent a Room" scheme - which applied to the reduced stamp duty previously available for FTBs - something like you could not take in more than €7xxx in rent a year in the first 5 years or clawback of Stamp Duty at the increased rate.

Or is it that you only pay tax on rental income above this level?

How does this work now that there is no stamp duty for FTBs?

Is there a monetary amount or % of the mortgage cost above which you cannot take in without being liable to A. Tax (& how is this taxed?) and B. Stamp Duty clawback?

Or... to get technical, if I were prepared to sleep on the couch, and rent out all three rooms - would it still be a PPR because I'm living there?

 

[ClubMan]

I have heard a little about the "Rent a Room" scheme - which applied to the reduced stamp duty previously available for FTBs - something like you could not take in more than €7xxx in rent a year

€7,620 p.a. is the limit.

[broken link removed]

in the first 5 years

No - the 5 year limit has nothing to do with the rent a room scheme per se and you can never (i.e. not even after 5 years) collect more than €7,620 p.a. (unless this changes in the future) if you want to avail of this scheme and collect such income tax free.

or clawback of Stamp Duty at the increased rate.

SD clawback applies if you rent the property out other than under the owner occupier rent a room scheme within 5 years of purchase.

Or is it that you only pay tax on rental income above this level?

No - if you exceed the €7,620 limit then the rent a room scheme no longer applies and you are treated as a regular investor and all rental income (less allowable expenses etc.) is assessable for income tax.

How does this work now that there is no stamp duty for FTBs?

If the SD clawback applies then you are liable for what an investor would have paid less what you actually paid.

Is there a monetary amount or % of the mortgage cost above which you cannot take in without being liable to A. Tax (& how is this taxed?) and B. Stamp Duty clawback?

I don't understand this question.

Or... to get technical, if I were prepared to sleep on the couch, and rent out all three rooms - would it still be a PPR because I'm living there?

I think you have to retain one room for your own use but ultimately the €7,620 p.a. figure is the main/final arbiter.

 

[Faltermeyer]

Thankyou. You've answered all my questions in the post.

One further one - the tax you are liable for on rental income, is it PAYE? i.e. if I'm already paying 41%, I pay 41%?

You mention costs - does the cost of the mortgage (the interest component only obviously) count as a "cost" against that income?

I presume you also forfeit your first time buyer's tax relief if you take more than the €7620 p.a.?

 

[ClubMan]

One further one - the tax you are liable for on rental income, is it PAYE? i.e. if I'm already paying 41%, I pay 41%?

No - rental income is self assessed. See the Property Investment FAQ which summarises the tax treatment of rental income as well as some other relevant stuff.

You mention costs - does the cost of the mortgage (the interest component only obviously) count as a "cost" against that income?

Yes. And there may be other allowable costs too.

I presume you also forfeit your first time buyer's tax relief if you take more than the €7620 p.a.?

Not sure about the situation where you remain an owner occupier but rent the property outside the scope of the rent a room scheme (i.e. live in landlord collecting more than €7,620 p.a.) but normally you cannot claim owner occupier mortgage interest relief at the same time as you are setting mortgage interest against rental income.

 

[Faltermeyer]

Great. Well, great as in thankyou for your help, not that the answers bring me much joy!

I'll have a read of the FAQ.

Thanks.

 

[Faltermeyer]

I've just had a further thought about this. Possibly a stupid question:
-Does this differ between a new or a 2nd hand property?

 

[serotoninsid]

I've just had a further thought about this. Possibly a stupid question:
-Does this differ between a new or a 2nd hand property?

No.

 

[ClubMan]

Well - other than the fact that the SD paid on the original purhcase of a second hand house by an owner occupier (FTB or non FTB) may be different to that paid on a new build (€0 if under 125sqm) so will be deducted from the investor rate applicable when calculating the clawback. But otherwise the same general rules apply.

 

[Faltermeyer]

Bugger!

Thanks anyway.

Damnit all I want to do is buy a house and leave the country, is that really too much to ask?!

 

[ClubMan]

No - just buy as an investor and pay the relevant taxes.

 

[dstanley]

No - the 5 year limit has nothing to do with the rent a room scheme per se and you can never (i.e. not even after 5 years) collect more than €7,620 p.a. (unless this changes in the future) if you want to avail of this scheme and collect such income tax free.
No - if you exceed the €7,620 limit then the rent a room scheme no longer applies and you are treated as a regular investor and all rental income (less allowable expenses etc.) is assessable for income tax.
I think you have to retain one room for your own use but ultimately the €7,620 p.a. figure is the main/final arbiter.

I have called Revenue on this and they have advised me that anything over €7,260 is FINE but is taxable at income rates.

 

[serotoninsid]

I have called Revenue on this and they have advised me that anything over €7,260 is FINE but is taxable at income rates.

I think theres some breakdown in communication here. Anything I've ever heard/read suggests otherwise...

 

[dstanley]

I think theres some breakdown in communication here. Anything I've ever heard/read suggests otherwise...

From Citizens Information:
Rules

*** 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. ***

You can choose that this relief does not apply in a particular year of assessment by writing to the Inspector of Taxes in your tax district, prior to filing your tax returns for the period in which the room was rented.
While the income you receive from renting a room or rooms in your principal private residence is not liable to either PRSI or the 2% health levy, it must be included on your annual income tax return.


*** There is no deduction for expenses made in working out the rental income received. If the income you receive does not exceed the limit in the year (currently 7,620 euro), then these profits/losses are treated as "nil" for the year of assessment. ***



So you could have an annual income of €20,000 from the rent a room scheme but only pay income tax on €12,740 and still keep you interest relief and stamp duty exemption

 

[ClubMan]

I have called Revenue on this and they have advised me that anything over €7,260 is FINE but is taxable at income rates.

Whoever is telling you this is incorrect. Once you go over the €7,620 limit the rent a room scheme no longer applies and you are into a normal investor/rental situation.

From Citizens Information:
Rules

*** 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. ***

Yes - on the lot.

So you could have an annual income of €20,000 from the rent a room scheme but only pay income tax on €12,740 and still keep you interest relief and stamp duty exemption

No - this is not correct.

You really need to get independent, professional advice on this rather than depending on Revenue or me (even though I am correct here).

 

[Howitzer]

From Citizens Information:
Rules

*** 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. ***

You can choose that this relief does not apply in a particular year of assessment by writing to the Inspector of Taxes in your tax district, prior to filing your tax returns for the period in which the room was rented.
While the income you receive from renting a room or rooms in your principal private residence is not liable to either PRSI or the 2% health levy, it must be included on your annual income tax return.


*** There is no deduction for expenses made in working out the rental income received. If the income you receive does not exceed the limit in the year (currently 7,620 euro), then these profits/losses are treated as "nil" for the year of assessment. ***



So you could have an annual income of €20,000 from the rent a room scheme but only pay income tax on €12,740 and still keep you interest relief and stamp duty exemption

How on earth do you come to that conclusion? You've quoted something that directly contradicts what you have concluded it to say. I never seen so many one eyed, I'll hear what I want to hear, opinions on any other topic in my life. The rules on this are as clear as clear can be.