Do you have a spare room in you house and want to make up to €14,000 in tax-free rent? You may be interested in the Rent-a-Room Relief scheme. It allows homeowners to rent out rooms in their house based on a small list of regulations.
Renting out a room in your home can be a great way of earning some additional income by utilising spare space in your property. In Ireland, where the lack of rental properties available has led to a huge increase in rent prices, rent-a-room can be an attractive option. The scheme was introduced in 2001 in an effort to increase the quantity of accommodation available for tenants. It also aims to encourage property owners to declare their rental income to Revenue so tenants can keep their rent relief forms up to date.
Accommodation for students, in particular, is in very short supply. This means many are now looking towards digs-style accommodation, rather than house-shares or on-campus housing. Many properties in Ireland contain spare rooms which can be used as one answer to the issue of the rental market. If you are thinking about renting a room in your house, here are some things to consider:
RENT-A-ROOM SCHEME
The Rent-a-Room Relief scheme is designed to encourage people with spare rooms to rent them out, in the hopes that this may be one form of solution to the housing crisis. This scheme allows homeowners to earn up to €14,000 in a single tax year, exempt from income tax, PRSI, and USI. There are some regulations which need to be complied to in order to qualify for this tax relief:
- The owner must be resident in the property
- The property must be the owner’s primary residence
- If you are in receipt of Social Welfare, the income earned will be seen as means. This may therefore affect your Welfare payment
- With the exception of student and respite care leases, short term leases (such as Airbnb, guesthouse or bed and breakfast bookings) are not compliant with the Rent-A-Room scheme
- The room cannot be rented to direct family members
- Home owners can avail of the scheme and declare income through Revenue Online Service
BENEFITS FOR LANDLORDS
There are various benefits to be considered when renting out a room in your house.
- The most obvious benefit for landlords is the extra income earned from a previously unused space
- You are not required to register as a landlord with the Residential Tenancy Board (RTB)
- Your property does not technically have to meet specific standards
- It is not essential to provide a rent book
- The period of occupation can also be ended at your discretion, provided that you give the tenant reasonable notice
- If you decide to sell your home, the Rent-a-Room Relief scheme will not affect your capital gains tax.
However, if the room you are renting out is a self-contained unit, you must register as a landlord with the RTB. This means that you are subject to the regulations of a traditional landlord (providing a rent book, meeting minimum standards of accommodation, etc.).
If you are considering renting out a room, click here to see our list of useful tips.
BENEFITS FOR TENANTS
Renting a room in a property is a good solution to the difficulty associated with finding an entire property to rent. It may be of particular interest to students, considering there is an estimated 25,000 fewer student beds in Ireland than required. Even with the new purpose-built student accommodation blocks being constructed around Dublin, these flats have high rental rates. They may be out of budget for a lot of students moving to the city to study. You may also be more likely to find accommodation for the academic year only with a rent-a-room agreement than with traditional rental properties. In essence, you could end up saving yourself 3 months rent if you can find a room-to-rent for only the period you need it for.
The informal agreement between owner and lodger means that you are not required to give any more than reasonable notice for ending your stay.
Tenants in rent-a-room accommodation can still avail of the Housing Assistance Payment scheme (HAP), providing the property and landlord comply with a specific set of regulations.
DISADVANTAGES
Due to the fact that rent-a-room landlords are not required to register with the RTB, the tenants of these rooms are not entitled to the same rights as traditional tenants:
- If the room is not a self-contained unit, it does not need to meet any minimum physical standards. However, by living with the homeowner, the standards of the accommodation should already be suitable for habitation.
- The landlord is not required to give the tenant a set period of notice for residency termination. Instead they must only provide reasonable notice. This is a two-way street, and a tenant can also choose to terminate the residency with reasonable notice.
- As you are living in the property by invitation of the owner, you are not protected by the same rights as a traditional tenancy agreement. The Equal Status Acts, for example, do not apply to rent-a-room tenants.
As this arrangement is not considered a tenancy relationship, any disputes which occur between the homeowner and the lodger cannot be mediated through the RTB’s dispute resolution service. The parties must therefore bring any disputes to the Small Claims Court.
Even though a formal tenancy agreement is not a requirement for the Rent-A-Room scheme, it is strongly recommended that the tenant and landlord set out a written list of rules and agreements. These should be signed, dated, and a copy provided to each party. This list should include the rent amount, when it is paid, and the start date and duration of the tenancy. A set of agreements will help in the event of a misunderstanding and create more security in the tenancy.
While this is definitely one solution to the rental market crisis, it is definitely not suitable for everyone. Both homeowners and tenants should take all advantages and disadvantages of renting a room into consideration before making any final decisions.
Your local tax office will be able to answer any queries you may have about the Rent-A-Room scheme specific to your needs. However, if you are looking for help in renting out a room or self-contained unit in your house, why not book a consultation with us to see if we can help?
