Granny Flats and Rent-a-Room Scheme?

juicytasty

I seem to find myself lost in very grey area with regards to this. My elderly mam has a self contained granny flat attached to her home. It has it's own front door and electricity meter/storage heating and a shared water meter/connection. The connecting door of the granny flat is still visible on mams side but covered over on the granny flat side. As she isn't ready to move into the flat herself yet but wants to make a few extra bob, my question is does it qualify for the 'Rent a Room Scheme'?

On the revenues website, they state a 'Qualifying Residence" as the following':

"4.2 Self-contained unit
It is not possible to let an entire residence because the room or rooms that are let must
form part of the residence and the residence must be occupied by the individual
receiving the rent as his/her sole or main residence. The room or rooms can comprise
a self-contained unit within the residence such as a basement flat or a converted
garage attached to the residence. However, a self-contained unit that is adjacent to the
residence but not actually attached to it cannot qualify for the relief."

The above seems like she qualifies for the 'Rent a Room' scheme because the granny flat is attached to her residence/home. They also give an example on the same document about a guy who converts his basement into a self contained flat and qualifies for the 'rent a Room Scheme'.

What do you think? Has anybody else been in the same situation?

Any help would really help us here. Thanks in advance!

MouseTail

My view is she is clearly eligible for rent a room scheme.

MarkAnthony

Tax law isn't always black and white, contrary to popular belief. Now before I say this...

GET LEGAL ADVICE

but I'd be of the opinion it was fine on reading the guidelines. You'd certainly have a good argument if the revenue did pitch up, IMO the worst that would happen would be that they'd look for income tax, but did I mention...

GET LEGAL ADVICE

Gumbo

No. It might fall short of he planning and development act. The grand flat was granted permission originally on the basis that a family member was living in the unit, hence the adjoins door. And once that family member ceases to use the granny flat, then the extension becomes part of the house.

If you rent it out, then technically you can have planning enforcement proceedings issued against you.

juicytasty

MouseTail wrote: »

My view is she is clearly eligible for rent a room scheme.

I'm inclined to think so too MouseTail. It's all a bit confusing though, and the people in the relevant agencies who should know are all telling me something different. The common consensus seems to be that because its adjoined to the property it falls under the rent a room scheme. But as MarkAnthony suggested, think I'm going to need legal advice just to be sure...cheers!

juicytasty

kceire wrote: »

No. It might fall short of he planning and development act. The grand flat was granted permission originally on the basis that a family member was living in the unit, hence the adjoins door. And once that family member ceases to use the granny flat, then the extension becomes part of the house.

If you rent it out, then technically you can have planning enforcement proceedings issued against you.

Thanks for the info Kceire! The previous owner was a dr and actually built it as an extension to his surgery, then it was converted later by us for family use as you say. I've slept in it myself on and off over the yrs and we have always considered it as part of the house because of the connecting door to either side. Excuse my ignorance but would the original planning permission granted to the previous owner still apply to present owners?

juicytasty

MarkAnthony wrote: »

Tax law isn't always black and white, contrary to popular belief. Now before I say this...

GET LEGAL ADVICE

but I'd be of the opinion it was fine on reading the guidelines. You'd certainly have a good argument if the revenue did pitch up, IMO the worst that would happen would be that they'd look for income tax, but did I mention...

GET LEGAL ADVICE

That's the thing. I phoned the revenue last yr and a lady told me it was included in the rent a room scheme, she was adamant about it. I thought nothing more about it until I phoned them again last week and a different lady told me it wasn't!!! To be fair the lady who said it was exempt from the rent a room scheme didn't seem familiar with the scheme and that because it was a self contained unit it was exempt...which contradicts their own website. Definitely going to get legal advice, the ma's not getting any younger so don't want any hassle for her. Thanks MarkAnthony

Gumbo

juicytasty wrote: »

Excuse my ignorance but would the original planning permission granted to the previous owner still apply to present owners?

Yes. It's up to the home owner to regularise the planning situation if they deem it necessary.

P. Breathnach

Unless things have changed in recent years, I think most solicitors are no better clued-in on the finer details of tax law than a moderately-intelligent lay person. Accountants usually know better, as they deal more with tax matters.

I think the doubt about eligibility for the scheme would be lessened if the door between the main house and the granny flat were functional - but it could be kept locked and even screened over with a piece of furniture.

hfallada

Speak to an accountant. If you are wrong about it being included in rent a room scheme. You are setting your mother up for a tax bill that could cost thousands.

I can't see how it's covered in the scheme. I would consider the ESB meter making it a stand alone unit. It's not a room as such. But a stand alone property. It's like having a house attached to your house and trying to justify its under the rent a room scheme, as it's attached to the house.

juicytasty

hfallada wrote: »

Speak to an accountant. If you are wrong about it being included in rent a room scheme. You are setting your mother up for a tax bill that could cost thousands.

I can't see how it's covered in the scheme. I would consider the ESB meter making it a stand alone unit. It's not a room as such. But a stand alone property. It's like having a house attached to your house and trying to justify its under the rent a room scheme, as it's attached to the house.

It seems the issue isn't with the stand alone unit hfallada, it's more to do with a connecting door which would allow it to be converted back in the future, which it has. The Revenue themselves state that a self contained unit attached to the house is included in the rent a room scheme. On the other hand, my understanding of their definition is that if it is not attached to the house and down the back of the garden, it is considered a separate property and doesn't. Maybe their view is that practically speaking, an attached conversion couldn't be sold separately from the house, but a separate stand alone property could be. Personally I don't consider it as a stand alone property because we can walk between both sides, pay one property tax, share the same water mains, garden etc...the esb was separated because of a couple of storage heaters for the mam. Revenues official definition of a qualifying residence for rent a room relief is:

"4.2 Self-contained unit
The room or rooms can comprise a self-contained unit within the residence such as a basement flat or a converted garage attached to the residence. However, a self-contained unit that is adjacent to the residence but not actually attached to it cannot qualify for the relief."

juicytasty

P. Breathnach wrote: »

Unless things have changed in recent years, I think most solicitors are no better clued-in on the finer details of tax law than a moderately-intelligent lay person. Accountants usually know better, as they deal more with tax matters.

I think the doubt about eligibility for the scheme would be lessened if the door between the main house and the granny flat were functional - but it could be kept locked and even screened over with a piece of furniture.

I agree P. Breathnach. I remember phoning 'FLAC' for free legal advice, and a girl there told me by her understanding of the Revenues definition, an attached self contained granny flat does qualify for the rent a room scheme. That said, I am still going to get more legal advice and ask an accountant. The door is covered on the granny flat side and it connects a small hallway. It could be uncovered easily with maybe some furniture as you say, or maybe even a sliding partition put up for privacy.

Cuddlesworth

Open up the door on the granny flat side and lock it. Then its a room in the house.

The_Conductor

Ask by all means- but it has its own electricity meter, and the hallway into it is blocked off on one side (but not the other).

Either of these- would be construed as creating a self-contained maisonette.....

Reconstitute the access to the main house- and perhaps just put a locked door there- and get rid of the electricity meter- so its drawing electricity from the main house. It will meet Revenue's definition for the Rent-a-room scheme then.

Point of note- under no circumstance whatsoever are you to give the person living there a 'lease'. By all means draw up a set of 'household rules' (no guests without prior notice to you etc etc)- but *do not give them a lease under any circumstance*

The electricity meter is problematic- it could be used by someone as a mechanism to determine the unit was a rental unit- rather than a unit under the rent-a-room scheme. If a person managed to successfully argue that they were a tenant- it could prove exceptionally difficult to get them to move, if things went pear shaped.......

You want to remove any doubt whatsoever that this comes under the rent-a-room scheme, and is not a tenancy. If you don't- you will be hung out to dry. Your mother being landed with a tax bill could be the least of your worries- she could just as easily end up with a judgement against her- if she tried to remove a 'tenant' who decided not to pay their rent..........

This exact scenario has come up in here a few times- if I get a chance later I'll see if I can find a link or two.

In brief- make sure you reintegrate the unit into the property. Get rid of the second electricity meter. Get rid of anything that suggests this is a wholly self-contained unit. You can add these back in at a later date- but for the purpose of using it for the rent-a-room scheme- you need any ambiguities removed.

bingowings2015

Although the rules are ambiguous my guess is that your granny flat does qualify for the rent a room scheme. The issue with it being a self contained unit with it's own electricity doesn't seem relevant because Revenues own definition of what is a "qualifying residence" clearly states that a self contained unit that is "attached" to the main house falls under the rent a room scheme. Nowhere on any of their literature does it mention anything about a connecting door, but if one exists of course have it accessible and uncovered. I have a mate that was in the same situation and revenue gave him the green light for the rent a room scheme.

If I was you I would be more worried about who might be renting it. As The Conductor mentioned about tenants and a lease, your mother could have a legal nightmare trying to remove someone should they cause problems.

sohappy

Revenue dosent say anything about having access to the rest of the house, it allows a self contained unit as part of the property, I checked the revenue site and it Makes no reference to where that self contained unit draws its electricity from, If it was a stand alone unit would it not have planning status as such.and its own postal address.

The_Conductor

sohappy wrote: »

Revenue dosent say anything about having access to the rest of the house, it allows a self contained unit as part of the property, I checked the revenue site and it Makes no reference to where that self contained unit draws its electricity from, If it was a stand alone unit would it not have planning status as such.and its own postal address.

I'd be far more concerned about the PRTB considering it to be a private letting- than I would be the Revenue Commissioners - to be brutally honest.

The PRTB and the Revenue Commissioners- have entirely different perspectives on this- and while the Revenue Commissioners may be quite satisfied that the property meets the rules for the rent-a-room scheme- the PRTB may take an completely opposing view- and deem it to be a private residential letting.

You need to minimise the possible chance of this happening.

Your mum getting hit with a substantial tax bill is one thing. Your mum having an awkard 'tenant' overstaying without paying rent, and being a complete asshole- effectively in her house- is entirely a different situation. It would be completely untenable.

There is a different burden of proof demanded by the Revenue Commissioners- to the Private Residential Tenancies Board. Contrary to what most people might expect- the Revenue Commissioners are actually far more liberal in their understanding of what constitutes the rent-a-room scheme- and a licensee- than are the PRTB. The PRTB places a burden of proof on the landlord to prove the resident is not a tenant. The Revenue Commissioners place no such burden on a home owner.

Mrs OBumble

The tax-implications and the tenancy-legislation implications are different, and have different requirements.

The home-owner being discussed will both be availing of the rent-a-room tax relief (which lets her pay less tax on the income than would otherwise be required) AND operating as a landlord within the remit of the Residential Tenancies Act. This is a both/and situation, not an either/or one.

The tenancy should be registered with the PRTB like any other. I believe not doing so is illegal.

Do not open up a door between the two properties - as the Conductor says, if there was a problem tenant, then doing so would let the problem into her home.

If she is paranoid about Revenue possibly interpreting the rules differently, then just stick 20% of the rental income received into a separate bank account and keep it there, in case there is a Revenue bill to be paid. (Personally I'd think it's unlikely because the Revenue guideline is so specific about the word "attached", and you cannot get more attached than sharing a wall. But that's just my opinion.)

Cuddlesworth

Mrs OBumble wrote: »

Do not open up a door between the two properties - as the Conductor says, if there was a problem tenant, then doing so would let the problem into her home.

Pretty sure he is saying the exact opposite.

The_Conductor

Cuddlesworth wrote: »

Pretty sure he is saying the exact opposite.

Correct.

I.e.

Open the passage (keep the door locked though).
Re-route the electricity so its on the power for the main house (get a proper electrician to do this).
Draw up house rules.
Do not give the person a 'lease'.
Do not register with the PRTB (as this has been used in previous cases to undermine an ascertain that a similar property (a converted garage attached to a main residence) was in fact a separate residence- which granted the person staying there rights under the 2004 Act).

I would be far more concerned with someone gaining rights as a 'tenant' and abusing a tenancy- than I would the tax situation- however, you will still have to keep under the 12k limit.

Make sure there is no way this is viewed as a tenancy by the person staying there. This cannot be over emphasised.

Pawwed Rig

Revenue don't always have the correct answers. I would consider ringing them to ask them similar to reading the FAQ's on the website along with any guidance which you have included in the OP.
Accountants wouldn't know the answer either. Ask a tax advisor

The_Conductor

I'll just emphasise again- the tax and the 'tenancy' situations- are two totally different issues. The PRTB is not obligated towards Revenue (and vice versa) and just because one body views the 'tenancy' in a particular manner- does not infer any obligation on the other body to view the 'tenancy' in the same light.

The 'Rent-a-Room' scheme is relatively straight forward- and there are plenty of examples and cases available to define the constraints of the scheme. Any decent Revenue employee will be able to give you a decent steer on this even over the phone. If you're any way unhappy with the explanation- or feel it doesn't quite suit your own particular circumstances- you would be well advised to seek professional help from an accountant and/or solicitor who is thoroughly familiar with the scheme (and the 2004 RTA). In all honesty though- it is in fact quite straight forward. Don't get yourself tangled in knots over something relatively straight forward.

The second issue- whether or not a 'letting' (in the context given in the original post) constitutes a tenancy under the 2004 Act- is entirely a different matter- and this aspect of the query is the primary aspect I would have concerns about.

Whatever about the Original Poster's mother being presented with an unexpected tax liability (which is a concern)- the potential for serious issues with a 'tenant' who overstayed, refusing to vacate the property when requested to do so, a tenant who didn't pay rent- or indeed, a tenant who brought a case for an unfair eviction- on the basis that their residence in the property constituted a tenancy- is of far more concern- than potential issues with Revenue.

I deal with Revenue not infrequently- and find them brilliant. In the main they are very straightforward- and able to give you 'yes' or 'no' answers. The PRTB are also great- however, on any given day- depending on how someone presents a case- the potential for a ruling contrary to what an onlooker might expect- is exponentially higher (though the boards do their best to mitigate against these type scenarios).

Tax legislation and Tenancy legislation- are two entirely different kettle of fish- and on a not infrequent basis- may present results differing in interpretations of any given situation. If you focus on one side of the coin- but not the other- you risk leaving yourself open to the vagaries of law that arguably need not necessarily apply to the situation.

al22

If a granny flat is a part of you rown house legally, and you live in the house yourself too. it qualifies and can be rented out as a rent-a-room. If not it is a separate building. Requirement is the owner must to live -in in the same house. If your granny own it, she qualified to rent a room if she lives there too. Otherway will be tax

of 20% on the rental income. (my opinion, please check with a Tax people.

juicytasty

Thanks everybody, all the advice is greatly appreciated. I finally got conformation from the revenue that the granny flat qualifies for the rent a room scheme. Thankfully the connecting door and separate electricity supply is of no relevance but I may open it up again regardless for peace of mind. Their main rule is that the self contained unit is part of the main residence where the owner is residing, i.e attached to the main house and not adjacent / separate.

With regards to tenancy issues, to be honest I hadn't thought about that side of things until reading posts here. It's certainly a concern and something I need to seriously look into.

Sincere thanks again all.

al22

Its OK

but recently with Property Tax some people got two demands to pay, for a main house and for the extention (granny flat) separately because when were built they got two planning permitions? main house one and extention a second permit with different registration number, even if that is only one house and one owner.

Alkers

Out of interest dies the granny flat have its own kitchen and bathroom etc?

Simona1986

Simona1986 wrote: »

Out of interest dies the granny flat have its own kitchen and bathroom etc?

The idea of a granny flat to be totally self contained so the main house doesn't need to be used.

Its pretty much the prefect way to do rent a room as you are not really sharing your house at all.

Alkers

So even if it has two bedrooms etc it can still fall under the rent a room scheme?

Cuddlesworth

Simona1986 wrote: »

So even if it has two bedrooms etc it can still fall under the rent a room scheme?

Depends on how Revenue view it. If they feel it classifies as a separate residence in their eyes, it will be up to you to prove otherwise. At the point where it has a separate entrances, bathroom, kitchen and utility's I think that would be a hard argument to make.

Pawwed Rig

It should be noted that where they find it is a separate premises you will have issues claiming PPR relief on any future sale of the property never mind the additional LPT

The_Conductor

Simona1986 wrote: »

So even if it has two bedrooms etc it can still fall under the rent a room scheme?

Technically- but you'd still have the limits- which includes any contribution they may make towards utilities for the property (you don't get to separate this out). Also- as discussed ad nauseum in this thread already- the issue would rapidly become one of whether a 'rentee' was a tenant- or a license holder- if the property is wholly separate- good luck trying to argue this with the PRTB.

Just because the Revenue Commissioners accept that a setup qualifies under the rent-a-room scheme, does not mean the PRTB will.