Friday 20 April 2018

Can I get rent-a-room tax relief for taking in foreign students?

Your Questions

Your Questions: Gerry Stewart
Your Questions: Gerry Stewart

Gerry Stewart

I wish to take foreign students from an Irish-based language school who will attend classes in Dublin for a week or more.

During their stay in my home, I will provide meals and am expected to converse with them during this time and to treat them as part of the family.

I consider this to be short-term residential stay. Will I qualify for tax relief under the rent-a-room scheme if I go ahead with this?

Catherine, Lusk, Co Dublin


Unfortunately the answer is no. The legislation, and the guidance issued by the Revenue Commissioners, clearly states that the income that is tax-exempt under the rent-a-room scheme is income arising from the provision of residential accommodation, rather than guest accommodation.

They define residential accommodation as where the occupant is effectively using the room on a long-term basis, either on its own or in conjunction with other parts of the house, as a home.

The Revenue regard the provision of accommodation to guests for short periods as guest accommodation, and this is taxed as trading income, and so would not qualify for rent-a-room relief.

I am a pensioner who retired recently. When I retired, I invested my pension into Approved Retirement Funds (ARF's) because I wanted to ensure they were available for my wife and children on my death.

At the time, I had to set aside €63,500 into an Approved Minimum Retirement Fund (AMRF) until the age of 75 and the balance of my pensions into an Approved Retirement Fund.

I recently read somewhere that the rules governing these funds have changed and find myself wondering if this will have an impact on my pension income?

Jack, Skerries, Co Dublin


You did not provide your age or the value of your ARFs so I am providing an overview of the relevant changes which came into effect on January 1, 2015.

In relation to your €63,500 AMRF, you may now withdraw up to 4pc of the value of the assets of the AMRF each year, subject to taxation at the marginal rate and regardless of the AMRF value. This withdrawal is voluntary and does not have to be taken. You were previously only allowed to withdraw the income or gains from the original capital invested into the AMRF up to age 75. This 4pc may add €2,540 to your income but depending on how your AMRF fund performs, this 4pc may also reduce the value of this fund so you should revisit your financial adviser to discuss this.

Where your ARF value is less than €2m and you are aged 61 to 70, you must withdraw 4pc per year. This is called imputed distribution. This has reduced from 5pc per year but it remains at 5pc if you are aged 71 years or over. Also, if your ARF fund is valued at over €2 million, then the 6pc annual imputed distribution still remains in place.

Two friends and I set up a business seven years ago after taking redundancy from a former employer. Since then, we have gone from strength to strength and now employ eight additional staff.

Cashflow is positive but we do not have a large amount of money in the bank. We now feel that our business has a saleable value and we want to know if there is a way of protecting this value in the event of premature death.

We are all equal one-third shareholders. Two of us are married with young children.

Heather, Kilkee, Co Clare


This is a question that we are asked about quite a lot. Many small businesses are in a similar position. You do not explain if you are a partnership or a limited company. I will respond as if it is a limited company, but if it is a partnership the principle is similar.

There are many issues that arise on the death of a shareholder. One example is the existing shareholders may lose control of the deceased's one-third's share and the deceased's family may not want to sell or may feel the business has a higher value and may expect a higher payment for the shares. A bigger issue is that the remaining shareholders may not have ready cash to buy the shares and you have indicated as much. Life insurance could therefore be a good idea here.

The starting point is to get a business valuation. Your accountant should be able to help here. You said you all own an equal share of the business. Let's assume the valuation is €300,000. In this instance, you each own €100,000 of the value of the business.

So with your life cover, each shareholder's life would be insured for €100,000. On premature death, this €100,000 becomes available to the business or the remaining shareholders and this is used to buy the shares from the deceased's family. Furthermore, it is normally backed by a legal agreement put in place at the same time as the life cover. Ensure that the remaining partners can buy the shares. The life assurance policy provides the remaining shareholders with the €100,000 to purchase the shares from the deceased's family whilst the deceased's family receive the €100,000. There are legal and tax implications so you should seek independent advice.

Gerry Stewart is partner with Fagan & Associates


Email your questions to 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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