Rent a room scheme - why still tax exempt? Costing the state millions

MMAGirl

Why is the rent a room scheme still active?
I know several people making a profit over and above even what their mortgage is every month.
I could rent 2 rooms in my house and easily make €10,000 per year TAX FREE.
If I earned this much extra income at work, second job or even renting out an apartment I would be taxed on it at 41% + USC etc.

This is costing the state a serious wedge.
I heard its supposed to be gone in 2013 but is that the beginning or end of 2013.

Stheno

Possibly as it is stopping thousands of people availing of it from falling into Mortgage arrears?

Childminders can also mind children in their home up to a certain amount per year without paying tax, should we stop this too and prevent women going into the workplace and paying tax?

thebman

Seems like it would be a hard thing to police.

If someone takes someone in and gets paid cash in hand then what?

Stheno

thebman wrote: »

Seems like it would be a hard thing to police.

If someone takes someone in and gets paid cash in hand then what?

Both childminders earning under the limit and homeowners renting under buy to let are required to declare the income.

Homeowners renting are also liable to have tenants claiming rent relief so not that hard to police.

Manach

Yet another social program in force by the State which has long since run its course yet still in existence due to forces of inertia that drive the bureaucracy.

MMAGirl

I was talking to the other half about this this morning. One of the people we know actually is getting mortgage interest relief too.
She bought a house in Dublin for €280 early this year. Has 2 rooms rented and is getting the max, a total of €800PM. Mortgage is just over €1000 PM.

And there is me going into work today and giving up half the money I get for it to revenue. Definitely something wrong here. Usually I refuse overtime because of the tax on it and will in future. Today was a favour.

Sam Kade

MMAGirl wrote: »

I was talking to the other half about this this morning. One of the people we know actually is getting mortgage interest relief too.
She bought a house in Dublin for €280 early this year. Has 2 rooms rented and is getting the max, a total of €800PM. Mortgage is just over €1000 PM.

And there is me going into work today and giving up half the money I get for it to revenue. Definitely something wrong here. Usually I refuse overtime because of the tax on it and will in future. Today was a favour.

steve9859

Stheno wrote: »

Both childminders earning under the limit and homeowners renting under buy to let are required to declare the income.

Homeowners renting are also liable to have tenants claiming rent relief so not that hard to police.

Not really. I'd be very surprised if many people that rent rooms claim rent relief, and that the homeowners are registered as landlords. They are generally informal cash in hand arrangements. In my days of renting a room myself, and then renting my spare room to others when I bought a place (to help with the mortgage) that was certainly how it worked.

Itchianus

MMAGirl wrote: »

I was talking to the other half about this this morning. One of the people we know actually is getting mortgage interest relief too.
She bought a house in Dublin for €280 early this year. Has 2 rooms rented and is getting the max, a total of €800PM. Mortgage is just over €1000 PM.

And there is me going into work today and giving up half the money I get for it to revenue. Definitely something wrong here. Usually I refuse overtime because of the tax on it and will in future. Today was a favour.

Do you own a house? If so why don't you get on the bandwagon? No amount of tax free money would encourage me to give up the privacy of my own home to a stranger/strangers, unless it was a financial necessity. Particularly if I was planning a family.

MMAGirl

Itchianus wrote: »

Do you own a house? If so why don't you get on the bandwagon? No amount of tax free money would encourage me to give up the privacy of my own home to a stranger/strangers, unless it was a financial necessity. Particularly if I was planning a family.

I do. We used to rent a room years ago, even before the rent a room scheme.
I dont need to do it anymore and like yourself have got used to having the house to ourselves, but if I ever do do it again I am happy to pay the tax on it.

Its about tax on income. ITs just not fair to have one persons income untaxed while someone else is taxed to the eye-balls to subsidize that tax break.

I'm all for a flat rate tax across all income (dole, rental income, pension, childrens allowance, the whole lot). The more you earn the more you pay, but the system we have now is seriously skewed against those working for a living.

murphaph

Stheno wrote: »

Homeowners renting are also liable to have tenants claiming rent relief so not that hard to police.

Rent relief has been abolished for new claimants.

murphaph

MMAGirl wrote: »

I do. We used to rent a room years ago, even before the rent a room scheme.

Did you dutifully declare it and pay 41% income tax on it? I presume not, as you generally refuse to do OT for the same reason, no?

If the relief is abolished it'll likely drive rents up as honest rent a roomers stop renting rooms out because it's not worth the loss of privacy and so in turn there will be an increased demand for proper rented rooms under tenancy agreements.

The not so honest will continue to rent rooms undeclared.

It's the nature of the beast. How do you police such things? GPs don't declare all their income, nor do B&B owners (many only take cash) and a whole raft of other services.

Scrapping the relief won't bring extra revenue to the exchequer IMO, but I'd be (selfishly) in favour of it as I don't avail of it but do rent out normal property and I'd see increased demand for it if this relief was abolished.

I don't believe the costs involved in attempting to police this area would ever be recouped in tax returns however. It's hard to do spot checks....with doctors and B&Bs you can "sting" them potentially, but Revenue can't really go around moving in to rent a room houses to see if the LL declares the rent.

MMAGirl

murphaph wrote: »

Did you dutifully declare it and pay 41% income tax on it? I presume not, as you generally refuse to do OT for the same reason, no?

If the relief is abolished it'll likely drive rents up as honest rent a roomers stop renting rooms out because it's not worth the loss of privacy and so in turn there will be an increased demand for proper rented rooms under tenancy agreements.

The not so honest will continue to rent rooms undeclared.

It's the nature of the beast. How do you police such things? GPs don't declare all their income, nor do B&B owners (many only take cash) and a whole raft of other services.

Scrapping the relief won't bring extra revenue to the exchequer IMO, but I'd be (selfishly) in favour of it as I don't avail of it but do rent out normal property and I'd see increased demand for it if this relief was abolished.

I don't believe the costs involved in attempting to police this area would ever be recouped in tax returns however. It's hard to do spot checks....with doctors and B&Bs you can "sting" them potentially, but Revenue can't really go around moving in to rent a room houses to see if the LL declares the rent.

Excuse me. I have always paid the taxes that i'm legally bound to pay.
I love the view that "oh if you start trying to get people who dont pay their way now to pay their way, well some of them might not pay their taxes"

Its the same as policing any other tax.

You make examples of the first people you catch and the rest will follow.

Give me 20 minutes in revenues databases and i'll find a huge percentage of those. I've contracted in revenue before and I can tell you that they have all the data they need to implement this. They also have all the data they need to catch tax dodging LLs. When I asked the guys there why they dont they said it has been flagged and will be worth going after when charges and penalties make it worth while. At the moment you cant get blood from a stone but when things pick up there is a project on ice in revenue - much like the offshore accounts project of years gone by. Dodgy LLs arent getting away with what they think they are.

steve9859

So how do they establish that someone living in the spare room, giving you €100 cash every week (in hand, not into the bank account) isn't just a friend whom you are kindly letting live in your house?

MMAGirl

steve9859 wrote: »

So how do they establish that someone living in the spare room, giving you €100 cash every week (in hand, not into the bank account) isn't just a friend whom you are kindly letting live in your house?

Revenue are very clever people. If they want to tango with you, you'll be the one with the sore arse. They have all sorts of ways of investigating. The only thing they dont have is the manpower. So they wait for their prey to be ripe for the picking and then run a blitz.

They dont have to get everyone to ensure that the self assessment then becomes viable.

When the new deposit holding service comes in I cant imagine too many people renting rooms that will want to bypass this. Im sure there will be a few but certainly the vast majority will want to hand their deposits to it rather than have no comeback handing it to the homeowner.

For rentals there was also a plan a one point to have tenants pay a portion of the PRTB registration charge when the rent relief was to be abolished. A fiver or tenner or thereabouts. If they didnt register themselves then they wouldnt be entitled to use the PRTB. So they would be encouraged to register or risk their deposit and rights. I dont know what happened to it because i havent been there in many years. I assume the downturn put paid to it. I'm sure it will be back.

Think of the database updates there. Cross reference that with the landlords. Easypickings.
Same could be done with rent a room.

steve9859

I think you'll find most people renting rooms rent to friends who have no difficulty handing over a deposit, and happy to not use the PRTB. Its different to renting a whole flat and handing your cash over to an agent or absentee landlord. The UK has had a deposit holding service for a long time (I have cash sitting in it right now), and I've never heard of friends of mine who are renting other friend's spare rooms using it.

Many that rent a spare room also rent in a rented property, rather than an owner occupied one. Landlords turn a blind eye to this subletting as long as their rent is paid...I do that myself here in London, subletting the spare room in my rented flat 4 days a week...cash in hand.

And I wouldn't think there's too any families who would have a random stranger in their house. Rather the student child of a friend of a friend.

All that will not get on a database...

GetWithIt

thebman wrote: »

Seems like it would be a hard thing to police.

If someone takes someone in and gets paid cash in hand then what?

This touches on why the Rent a Room scheme is nothing to do with tax avoidance. Removing the scheme will not result in a single extra euro for the state.

People have always rented out rooms, especially in the early years of owning a house. Nobody has ever paid a single euro in tax on this income.

So what was the purpose of the scheme?

It legitimized this income and allowed people to add it to the mortgage applications. Allowing people to borrow more than they would have originally been able to based on their income. It was originally something like 6K at the early part of the bubble and bumped up to 10K at the height of the bubble.

This was only ever a means of inflating the bubble. More Bertie-nomics.

MMAGirl

Well having delved deeper with major googling it seems its on the cards for next year. About time.

bbsrs

MMAGirl wrote: »

I was talking to the other half about this this morning. One of the people we know actually is getting mortgage interest relief too.
She bought a house in Dublin for €280 early this year. Has 2 rooms rented and is getting the max, a total of €800PM. Mortgage is just over €1000 PM.

And there is me going into work today and giving up half the money I get for it to revenue. Definitely something wrong here. Usually I refuse overtime because of the tax on it and will in future. Today was a favour.

What is wrong , the girl has a house , rents two room as she is entitled to for €800 per month for which she gives up her privacy. Big deal . Are there not bigger issues with the economy which you can focus your attention on or why don't you rent out some rooms in your house or if you dont have a house buy one and rent a couple of rooms then maybe you won't feel so bad about the tax free rent. Maybe focus on all the career social welfare recipients costing the state a lot more than the tax free rent .

Don't do favours and that will be another thing less for you to worry about.

logis43

MMAGirl wrote: »

I was talking to the other half about this this morning. One of the people we know actually is getting mortgage interest relief too.
She bought a house in Dublin for €280 early this year. Has 2 rooms rented and is getting the max, a total of €800PM. Mortgage is just over €1000 PM.

And there is me going into work today and giving up half the money I get for it to revenue. Definitely something wrong here. Usually I refuse overtime because of the tax on it and will in future. Today was a favour.

Sounds like a serious case of bitter-itus!!

Cuddlesworth

logis43 wrote: »

Sounds like a serious case of bitter-itus!!

Really, you signed up for that?

carpejugulum

Socialist paradise for some. High-tax economy for others.

Farmer Pudsey

The abolishing of rent a room will not add much to the government coffers. There is little or no point in renting a room if you end up paying half in tax. I remember living in two houses in my younger days where friends owned them. I contributed towards the costs to them every month.

No revenue data base can get to solve this issue for instance young house owner can declare part of money write part of costs to expenses and get rest in cash. All that will happen is that it will become the preserve of the better off young owner who can afford to shield this income from the mortgage payment.

Both the lads in my time stayed in the house there was no deposits, no rental agreements and for us we were staying in a newer house than some other rentals that was warmer and cleaner and the rent was cheaper.

murphaph

It might push rents up further as some owners will certainly withdraw from the scheme and their lodgers will seek rental accommodation.

RichardAnd

MMAGirl wrote: »

I could rent 2 rooms in my house and easily make €10,000 per year TAX FREE.

So what's stopping you?