Wednesday 23 October 2019

Your Questions: Can we claim rent-a-room relief on flat used by child?

Leeann O'Kelly, Press Manager with the Revenue Commissioners (revenue.ie)

'Based on the information provided, if you as the parent rented out the spare room, you could not claim rent-a-room relief because the apartment is not your sole or main residence'
'Based on the information provided, if you as the parent rented out the spare room, you could not claim rent-a-room relief because the apartment is not your sole or main residence'

Leeann O'Kelly

Q. We bought an apartment in Dublin last year as our child is living and studying there and student accommodation rates are astronomical. The plan is that our child will use one bedroom and that we will rent out the second bedroom to help cover the mortgage and annual expenses. Can we let the spare room out under the rent-a-room scheme if the apartment is our child's main residence?

Our child now lives there all year round, is not the owner but is our dependant while studying. Would the apartment have to be in our child's name too, or can our child sub-let the spare room under the rent-a-room scheme and make the tax return in her name? Margaret, Co Kerry

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A. An individual does not have to own the property to claim rent-a-room relief. However, the property must be the individual's sole or main residence during the tax year. Sole or main residence is best described as an individual's home during the year of tax assessment.

Based on the information provided, if you as the parent rented out the spare room, you could not claim rent-a-room relief because the apartment is not your sole or main residence. As such, you would be taxable on the rental income and required to make a declaration of this income in your annual tax return.

If your child was renting out part of the property to another person, your child would have to be legally entitled to receive the rent - for example, your child would have to have the freehold interest or a formal leasehold interest in the property.

To qualify for rent-a-room relief, your child would also have to establish that the property was her sole or main residence. As long as your child continues to live there all year around, this should not be an issue - but if it arose that your child only occupied the apartment during the academic year and not year-round, it might be the case that the property is no longer your child's main residence and so she would not be eligible to claim rent-a-room relief.

As long as all of the qualifying conditions for rent-a-room relief are met, the person renting the room or rooms can claim rent-a-room relief by entering the amount of exempt income on their tax return for the relevant tax year. It is important to note there may also be Capital Acquisitions Tax (CAT) matters to consider here, depending on how the apartment is provided to your child - that is, is the property being gifted to your child or is use of the property being provided rent-free to your child? The facts and circumstances of that arrangement will determine whether or not there are CAT matters to consider.

Short-term guest

Q. What is the definition of a short-term guest under the rent-a-room scheme? What duration of stay would lead Revenue to consider a guest to be a 'short-term' guest? Monica, Co Louth

A. In order to claim rent-a-room relief, the room or rooms must be used for the purposes of residential accommodation. The Revenue Commissioner's position has always been that rent-a-room relief cannot be claimed against income received for the use of the room or rooms by short-terms guests - including those who book accommodation through online booking sites. Similarly, income generated from a trade such as a guest-house or bed and breakfast does not qualify for rent-a-room relief.

Further measures announced in Budget 2019 put beyond doubt that rent-a-room relief does not apply to short-term tourist accommodation based on home-sharing, including where it is provided through online booking sites. With effect from January 1 this year, the relief does not apply to income arising from letting periods which do not exceed 28 consecutive days, other than where the individual using the accommodation is resident or ordinarily resident in the State and is incapacitated due to mental or physical infirmity; does so for a minimum of four consecutive days per week for not less than four consecutive weeks; or is a full-time or part-time student in the State.

So some scenarios where the minimum 28-consecutive day letting period (for the purposes of rent-a-room relief) would not apply include where the letting is for respite care for an incapacitated individual, and where the accommodation is for full- or part-time students (including language students) - or is four-day-a-week 'student digs'.

Change of mind on stay

Q. Can an individual still get relief under the rent-a-room relief scheme if a guest starts to rent a room in the individual's property - with the intention of renting it out for, say, a year - but the guest then changes his mind shortly after moving into the property and decides to leave? In other words, the guest doesn't stay long enough to be deemed a short-term guest by Revenue - but the intention at the outset had been for the guest to be a long-term guest. John, Dublin 3

A. While rent-a-room relief does not apply to income arising from letting periods which do not exceed 28 consecutive days, Revenue accepts that scenarios such as the one described may occur on occasion. In these scenarios, entitlement to rent-to-room relief would, in general, be determined on a case-by-case basis, taking all of the factors associated with the claim into account - including whether or not all of the other conditions of the rent-a-room relief scheme have been met.

Move to full-time lets

Q. I have occasionally rented out a holiday home for stays of up to two weeks. Given the Government's new short-term letting rules, I have decided to rent out that holiday home on a full-time basis instead. While acting as a provider of short-term accommodation, the income earned was chargeable to tax under Case IV. Now I am moving to rent the holiday home out on a full-time basis, I believe I will be paying tax on my income in a different way. Do I need to inform Revenue of my change in status from an occasional landlord to a full-time one? Delores, Co Cork

A: You do not need to inform Revenue of the change. However, you need to record the rental income correctly on your tax return. It should be noted that if a property is being rented on a full-time basis, it is taxed under Case V rather than Case IV.

If a PAYE taxpayer has additional income from other non-PAYE sources (such as rental income) which is below the threshold at which they are required to register for income tax as a self-assessed taxpayer (that threshold is currently gross income of €30,000 or net profit of €5,000), he or she will need to declare the additional income on a tax return Form 12. If the taxpayer exceeds the threshold mentioned above, he or she is required to register as a self-assessed taxpayer for income tax and return their income under the self-assessment system using a Form 11.

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

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

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