In Ireland, generally rental income is subject to income tax, USC and PRSI, however if you let a room in your home, the income you receive may be exempt from tax. The crucial thing is that the income cannot exceed a certain limit in order to be tax-free so this is where care is needed! Please note if you receive more than the below exemption limits, you are liable to tax on all the income, not just the amount that exceeds the exemption limit!
For you to qualify for Rent-a-Room Relief the following conditions must be met:
1. the gross income from the rent must be below the exemption limit (€14,000 in 2019)
2. there must be a minimum continuous-letting period (with exceptions) (must be for 28 days or more)
3. the room must be in a ’qualifying residence’.
Annual exemption limit for Rent-a-Room Relief
Year Income amount exempt
If your gross rental income does not exceed the exemption limit, you do not pay:
Income Tax (IT)
Pay Related Social Insurance (PRSI)
Universal Social Charge (USC).
If the gross rental income does exceed the exemption limit, the total amount of income is taxed.
Minimum continuous letting period
From 1 January 2019, the relief does not apply to income arising from letting periods which do not exceed 28 consecutive days. Therefore, they must target longer term rents. This rule was to target short-term lettings such as those let via Airbnb to ensure that people are liable to tax if they engage in this type of short-term letting.
Certain exceptions to the 28 day minimum rule such as lettings for respite care for incapacitated individuals, accommodation for full/part-time students or four-day-a-week ‘digs’.
It is crucial to remember that if you receive income that breaches the exemption limit, all the income is subject to tax, therefore it might be wise to charge a little less rent if you think you might breach the limit!
First Time Buyers – This one is for you!
First time buyers might look at letting out a room in order to supplement / cover a mortgage repayment. Being aware of rent-a-room relief and the rules pertaining to it might factor into your decision making in which place you might get.
For example, you might be considering buying a 2 or 3 bed apartment such that you might be able to rent out one or two rooms. If you thought you could get €750 per room then your income would look like this:
Renting 1 Room Rental Income
€750 X 12 €9,000
Net Income €9,000
Renting 2 Rooms Rental Income
€750 x 2 x 12 €18,000
Tax (assuming marginal rate 52%) €9,360
Net Income €8,640
Can you see this ridiculous outcome! You will have more money if you only rent one room rather than two. The reason being is that by renting one room, you are below the exemption threshold therefore none of the rental income earned is subject to tax. On the other hand, where you rent two rooms, all of the income will be subject to tax as you breached the threshold. The tax rate assumed is 52%.
So my advice for all those 3 bedroom home owners thinking of renting, you might be better off to keep a spare room for guests rather than renting, you’ll have more money in your pocket at the end of the day!
If you have any questions, please feel free to drop me a message!