The Rent A Room Scheme

If you rent out a room (or rooms) in your home to private tenants, you can receive this rental income tax free, up to an annual limit of €10,000. This is called the Rent a Room Scheme.

We now examine how this incentive works and we look at some of the terms and conditions attached to the scheme.

Introduction

The scheme allows a householder who rents out a room in their home to a tenant or tenants to be fully exempt from income tax on the rental income.

It was first introduced in 2001, in order to increase the supply of rented accommodation available to tenants. Over the years, the scheme has been very successful. The recent credit crunch and recession have meant that the Scheme is possibly now more popular than ever before, as more and more homeowners use the tax-free rental income to meet mortgage and other commitments.

The main conditions are as follows:

Principal Private Residence

The relief only applies if you are  renting a room or rooms in your ‘principal private residence’, i.e. your home. To qualify, the residence must be situated in the Republic of Ireland .

If you own and live in more than one home, you can only have one principal private residence. In such cases, the relief will only apply to the home where you live for most of the tax year. Therefore it will rarely apply to the letting of holiday homes etc.

The €10,000 limit

The relief only applies if the total rent received by the homeowner from tenants in their home amounts to €10,000 or less in any given tax year.

If the rent exceeds this figure, even by a small amount, the relief is not available and the rent received is subject to normal taxation rules

For this purpose, ‘rent’ includes the total of all sums receivable by the homeowner from the tenant - the rent itself and all other charges for heating, phone, food, laundry etc.

There is no deduction for expenses made in working out the rental income received - in all cases, the limit refers to the total rental income before all expenses, deductions and allowances.

If a home is shared by spouses or between other individuals, the limit of €10,000 is divided between the inhabitants.

Effect on other reliefs

If you avail of the ‘rent a room’ tax exemption, this does not affect your entitlement to other tax reliefs relating to your home, such as mortgage interest relief or Rural or Urban Renewal tax relief. Your exemption from capital gains tax on the sale of your home is also unaffected by participation in the Rent A Room Scheme.