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Can I get rent-a-room tax relief if I run a B&B from my home?

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Oonagh Casey Grehan

Oonagh Casey Grehan

Oonagh Casey Grehan

Ever since my husband was made redundant in 2008, we have been taking in students to help make ends meet.

I have always been paid in cash and I have never declared this to the Revenue Commissioners as I believed it was exempt under the Rent-A-Room scheme.

One of my friends raised a concern with me that you were only allowed to rent out one room and that I might have a tax issue because I had either two or three students at a time - is this correct?

Furthermore, as we live in a scenic part of Ireland, we were considering doing B&B with the empty student rooms in the summer - can this be covered under the rent-a-room relief?

Mary, Tralee, Co Kerry

 

To answer your first question, your friend is incorrect. Under tax legislation, income earned from renting out a room, or rooms, in your own home can be exempt from tax. The more important qualifying requirement for the exemption is that the gross income received from your live-in tenants must be under the relevant threshold for the tax year.

From 2008 to 2014, this threshold was €10,000, and this has been increased to €12,000 from January 1, 2015. If the gross income exceeds the threshold, even by €1, the full amount received is taxed as normal rental income - with associated allowable rental deductions/costs, where applicable.

Regarding the question of running a B&B in your home, unfortunately it would not qualify for tax relief under the rent-a-room scheme. This is becasuse a B&B is classed as guest accommodation rather than residential accommodation.

The B&B income would therefore be regarded as normal taxable rental income and would be potentially subject to tax, PRSI and the Universal Social Charge (depending on the amount of income you earn).

 

I am a pensioner who had a small shareholding of 472 Vodafone shares, arising from my original shareholding of Eircom shares.

In late 2013, I got a pack from Vodafone regarding the return of value to Vodafone shareholders, giving me a number of choices regarding my Vodafone shareholding.

To my shame I did nothing with the forms provided - they possibly found their way into the recycling bin.

I was subsequently advised by Vodafone that I now own 12 Verizon shares and 257 Vodafone shares, and then received an unexpected "special dividend" of €169. Do I need to pay tax on this dividend and do I need to file a tax return?

John, Bray, Co Wicklow

The return of value forms allowed Vodafone shareholders to advise how they would like to receive their payment under the Vodafone/Verizon deal - that is, as capital or income.

Anyone who did not return the forms to Vodafone, was automatically granted the default "income" option which was a special dividend and which is ordinarily taxable as income. Had you indicated that you wished to receive your return of value as capital, you would have avoided paying tax on the payment.

Good news, however - the Revenue Commissioners introduced a new provision in the 2014 Finance Act whereby anyone who received a payment of €1,000 or less as their return of value from Vodafone could treat the money received as a "capital" sum, rather than income.

This means it is not subject to income tax, PRSI nor the Universal Social Charge.

But what about Capital Gains Tax? The Revenue have considered this question too, for individuals who received €1,000 or less. If you acquired them through holding Eircom shares from 1999, the base cost of the Vodafone shares is higher than the return of value and therefore you have no capital gain (in actual fact, you made a loss), and no capital gains tax is payable.

The news gets better - if you don't ordinarily need to complete an annual tax return, the Revenue has advised that you do not need to file one just for this return of value. You should however keep details of the loss incurred (original costs and the return of value), as you could offset this loss against any future Capital Gains Tax bill.

 

My 22-year-old son has started working for himself. Is there anything you can recommend for him to pay into in case he gets ill as his job is very demanding.

Margaret, Co Roscommon

Your son could consider income protection insurance, which basically will replace his wage if he is unable to work due to an illness, injury or disability.

For self-employed people like your son, who would have no other source of income if an illness or disability prevented him from working, this cover can be very beneficial.

In addition, your son can get tax relief on his premiums at his higher rate of income tax (up to certain limits) which may make such insurance more affordable for him.

However, it is important he understands exactly what kind of cover he is getting from a policy before he signs up to it - and what conditions he must meet to make a successful claim.

Some income protection policies only cover you if you become severely disabled and are not able to carry out any paid work.

Such policies would provide your son with very little protection as he would need to be severely and permanently disabled before he could make a claim.

Serious illness insurance, which pays out a tax-free lump sum if you are diagnosed with a specific illness or disability, is another type of cover which your son could consider.

However, he should bear in mind that many illnesses that would prevent him from working may not be covered by a serious illness policy.

Furthermore, even when the illness is covered, the policy pays a once-off lump sum and not an ongoing income.

The list of illnesses covered by serious illness policies varies, depending on the insurer, but usually includes stroke and heart attack, some types of cancer, coronary artery disease, multiple sclerosis, kidney failure, motor neuron disease, blindness, major organ transplantation, a benign brain tumour and severe burns.

Oonagh Casey Grehan is tax partner with Fagan & Associates

Email your questions to lmcbride@independent.ie or write to: Your Questions, The Sunday Independent Business Section, 27-32 Talbot Street, Dublin 1.

While we will endeavour to place your questions with the most appropriate expert to answer your query, this column is a reader service and is not intended to replace professional advice.

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