Rent a room scheme vs capital appreciation on a PPR

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settlement

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I understand that we can rent out a room of our PPR for 1300 a month tax free which seems like a good deal.

However, is it possible that it can come against us financially in the long run?

Eg, purchase 2 bedroom house for 600k.
Home appreciates 4 % per year (just an average for sake of argument)
In 30 years, this home will therefore be worth 1.946 million.
We then sell it and make a profit of 1.346, which is not subject to capital gains as we did not rent a room.

scenario 2
rent a room
1300 x 12 months x 30 years, with inflation 4% = 925k profit
we then go to sell the house at 1.946 million, with a profit of 1.346 million
however, half of this profit is due to cgt (1 out of 2 bedrooms?) = 673k profit
this is added to the profit from renting of 925k = total of 1.598 million profit

Scenario 2 is more profitable but not by a huge amount.

i understand this may be based on incorrect assumptions.
1. You are unlikely to rent out a room for the entirety of the ownership
2. Does renting 1 out of 2 bedrooms mean half the house was only used as a home? What if 1 out of 2 bedrooms is rented but the other bedroom holds 2 people, eg a couple, is it still 50% of the house not used as a home? Or 33%?
3. I have not done the maths on how this would work with renting multiple rooms etc - does anyone know how this would work out mathematically
 

How does it affect other reliefs and taxes?

This page explains how rent a room relief affects other reliefs and taxes
www.revenue.ie www.revenue.ie

Rent-a-Room Relief​

  1. Overview
  2. What conditions must be met?
  3. What type of residence qualifies?
  4. How is relief granted?
  5. How does it affect other reliefs and taxes?

How does it affect other reliefs and taxes?​

If you qualify for Rent-a-Room Relief there will be no effect on Mortgage Interest Relief or Owner-Occupier Relief.

Your rental income will also be exempt from Pay Related Social Insurance (PRSI) and Universal Social Charge (USC).

There is no effect on the Capital Gains Tax (CGT) principal private residence exemption if you decide to sell your home.
 
Thanks Procotol for clarifying.
In that case I guess I would change my question to a 3 bedroom house, is it worth renting the third room and paying high tax on the rent when it might decrease the capital appreciation in the end? Although I admit this is less interesting to me
 
settlement said:
Thanks Procotol for clarifying.
In that case I guess I would change my question to a 3 bedroom house, is it worth renting the third room and paying high tax on the rent when it might decrease the capital appreciation in the end? Although I admit this is less interesting to me
Click to expand...
I don’t understand your question. If you rent out the third room in your house, it’s tax-free if the income is €14,000 or less per year, and it has no impact on PPR Relief.

If you charge €14,001, it’s all taxable, and it impacts on PPR Relief, so there’s a clear incentive to charge no more than €14,000.
 
settlement said:
Thanks Procotol for clarifying.
In that case I guess I would change my question to a 3 bedroom house, is it worth renting the third room and paying high tax on the rent when it might decrease the capital appreciation in the end? Although I admit this is less interesting to me
Click to expand...
How does renting an additional room decrease the capital appreciation?
 
Gordon Gekko said:
I don’t understand your question. If you rent out the third room in your house, it’s tax-free if the income is €14,000 or less per year, and it has no impact on PPR Relief.

If you charge €14,001, it’s all taxable, and it impacts on PPR Relief, so there’s a clear incentive to charge no more than €14,000.
Click to expand...
I meant to say, if you rent the third room then you don't avail of the rent a room scheme as you can only do this with one room or to a maximum of 1400 correct? And so when you sell it, you will owe money on the cgt of your ppr?
 
Once you live in the house, it's your PPR, and you don't pay CGT on any gain.

It doesn't matter how many rooms you rent out, or how much rental income you earn. If you live there, it's your PPR.
 
settlement said:
In that case I guess I would change my question to a 3 bedroom house, is it worth renting the third room and paying high tax on the rent when it might decrease the capital appreciation in the end? Although I admit this is less interesting to me
Click to expand...

I think there is some confusion. You can let one or more rooms under the "Rent-a-Room" scheme and claim PPR relief once the total annual rent for all rooms received does not exceed the magical €14,000.

See the Revenue Guidance:

Sums arising to an individual in respect of the letting, for residential purposes, of a room or rooms in his or her home......may be exempt from income tax where they meet the conditions and are below the annual limit for the tax year in question (see Paragraph 5).
Click to expand...
 
Protocol said:
Once you live in the house, it's your PPR, and you don't pay CGT on any gain.

It doesn't matter how many rooms you rent out, or how much rental income you earn. If you live there, it's your PPR.
Click to expand...
I don’t believe that the above is accurate.

If you rent out a portion of your PPR outside of the €14,000 Rent-a-Room scheme, your PPR Relief is diluted.

But yes, it doesn’t matter how many room are rented out, once the €14,000 threshold isn’t exceeded.

€14,000 is €14,000 after-tax, but for many people €14,001 is €6,720 after-tax.
 
settlement said:
I meant to say, if you rent the third room then you don't avail of the rent a room scheme as you can only do this with one room or to a maximum of 1400 correct? And so when you sell it, you will owe money on the cgt of your ppr?
Click to expand...
No. As mentioned above, you can rent out more than one room as long as the total income received from all people renting doesn't exceed €14k p.a. Also as mentioned above if you do receive more than €14k then you cannot avail of the rent a room scheme or PPR benefits.
 
ClubMan said:
No. As mentioned above, you can rent out more than one room as long as the total income received from all people renting doesn't exceed €14k p.a. Also as mentioned above if you do receive more than €14k then you cannot avail of the rent a room scheme or PPR benefits.
Click to expand...
But if you do receive more than 14k, does the initial 14k count?
 
settlement said:
But if you do receive more than 14k, does the initial 14k count?
Click to expand...
Did you actually read what people have posted?!
More than one contributor has clearly said or linked to info explaining ...

<= €14k and you can avail of the rent a room scheme and PPR status,
> €14k and you cannot and all rental income is assessable for tax and not just the excess over €14k.
 
settlement said:
However, is it possible that it can come against us financially in the long run?

Eg, purchase 2 bedroom house for 600k.
Home appreciates 4 % per year (just an average for sake of argument)
In 30 years, this home will therefore be worth 1.946 million.
We then sell it and make a profit of 1.346, which is not subject to capital gains as we did not rent a room.

scenario 2
rent a room
1300 x 12 months x 30 years, with inflation 4% = 925k profit
we then go to sell the house at 1.946 million, with a profit of 1.346 million
however, half of this profit is due to cgt (1 out of 2 bedrooms?) = 673k profit
this is added to the profit from renting of 925k = total of 1.598 million profit

Scenario 2 is more profitable but not by a huge amount.
Click to expand...

Nobody has the first clue of how the tax system will be configured in 30 years' time. Trying to plan on foot of very long-term assumptions will tend more than often to be a mug's game.
 
Last edited:
T McGibney said:
Trying to plan on foot of very long-term assumptions will tend more than often to be a mug's game.
Click to expand...
It's a reasonable assumption that capital gains on your PPR will still be fully or almost fully CGT-exempt in future.

It's hard to find a comparable country where typical gains on an average-sized PPR held for 15 years would attract material CGT. See here.

Levying CGT on PPRs is politically unpalatable not just in Ireland. That's unlikely to change here or elsewhere.
 
NoRegretsCoyote said:
It's a reasonable assumption that capital gains on your PPR will still be fully or almost fully CGT-exempt in future.

It's hard to find a comparable country where typical gains on an average-sized PPR held for 15 years would attract material CGT. See here.

Levying CGT on PPRs is politically unpalatable not just in Ireland. That's unlikely to change here or elsewhere.
Click to expand...
There's more than that being assumed here though.
 
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