Rent a room scheme - utility bills question

jimboyle

Some questions on the rent-a-room scheme. Say I am renting out 2 rooms in my house to two tenants as an owner occupier landlord. I am charging a total monthly rent of €1,150 for the 2 rooms combined, giving me an annual income of less than €14,000 which is under the threshold for paying tax.

So a few questions. I will also be allowing my girlfriend to live in the house for free. She’ll share my bedroom but pay no rent. Is this allowed and would it cause any difficulties in terms of the tax free threshold of €14,000?

Second question, I understand that if as the owner occupier landlord, I pay the utility bills, and I ask my tenants for extra money to pay the bills, this would put my annual income over the €14,000 threshold and I would therefore have to pay tax on the full amount. What if one of the tenants was responsible for the utility bills and all other tenants and the landlord (myself) paid their share of the bills to that tenant each month. Wouldn’t this mean that the landlord was not providing electricity/gas/internet? So therefore as the landlord, I could still earn €1150 a month in rental income and not have to worry about the bills putting me over the €14,000 threshold.

Now say that the tenant paying the bills was my non rent paying girlfriend. Is this breaking any of the rules? Would I be liable for any additional tax payment? The way I’d see it in this situation is that the utilities are a separate contract between the tenants and the 3rd party providers. Nothing to do with me as I am simply paying my share of the bills just like any of the tenants.

As you can gather I am trying to figure out a way to maximise my tax free rental income while ensuring that sure I would not be commiting tax evasion fines.

Paddy001

jimboyle wrote: »

Some questions on the rent-a-room scheme. Say I am renting out 2 rooms in my house to two tenants as an owner occupier landlord. I am charging a total monthly rent of €1,150 for the 2 rooms combined, giving me an annual income of less than €14,000 which is under the threshold for paying tax.

So a few questions. I will also be allowing my girlfriend to live in the house for free. She’ll share my bedroom but pay no rent. Is this allowed and would it cause any difficulties in terms of the tax free threshold of €14,000?

Second question, I understand that if as the owner occupier landlord, I pay the utility bills, and I ask my tenants for extra money to pay the bills, this would put my annual income over the €14,000 threshold and I would therefore have to pay tax on the full amount. What if one of the tenants was responsible for the utility bills and all other tenants and the landlord (myself) paid their share of the bills to that tenant each month. Wouldn’t this mean that the landlord was not providing electricity/gas/internet? So therefore as the landlord, I could still earn €1150 a month in rental income and not have to worry about the bills putting me over the €14,000 threshold.

Now say that the tenant paying the bills was my non rent paying girlfriend. Is this breaking any of the rules? Would I be liable for any additional tax payment? The way I’d see it in this situation is that the utilities are a separate contract between the tenants and the 3rd party providers. Nothing to do with me as I am simply paying my share of the bills just like any of the tenants.

As you can gather I am trying to figure out a way to maximise my tax free rental income while ensuring that sure I would not be commiting tax evasion fines.

Jim,

It is clear from your post that you are trying to circumvent the €14,000 threshold by moving the name on bills and in turn the flow of payments away from yourself. If Revenue come across this they will examine the substance of the changes and are likely to then raise assessments on you for income tax due together with interest and penalties. I would suggest that you do not proceed with this.

jimboyle

Thanks for the reply paddy. While yes I am trying to find a loophole in the rules so I can maximise my income, is 'acting with the intention to exploit a loophole' really a crime, if the loophole does indeed exist?

I would be declaring my annual rental income of say €13,800. I would just not be mentioning bills at all becasue as far as I'm concerned the tenants have a contract with the utility companies that has nothing to do with me.

When a non owner occupier landlord, rents out a property, typially one of the tenants would be registered for the utility bills. In that case, that landlord would have nothing to do with the utility companies and whatever they charge the tenants. The landlord would not be in receipt of the utility bills and he would not be liable be liable to pay tax on that income.

I agree it is a bit of a grey area but would my proposed arrangement explicitly be breaking any rules?

CIARAN_BOYLE

If the bills aren't in your name it's not your main residence therefore you are not entitled to rent a room relief.

That's revenue's view on your 'loophole'. Or else the substance of the transaction is that they are paying additional rent and you are over the limit.

Sleeper12

Paddy001 wrote:

It is clear from your post that you are trying to circumvent the €14,000 threshold by moving the name on bills and in turn the flow of payments away from yourself. If Revenue come across this they will examine the substance of the changes and are likely to then raise assessments on you for income tax due together with interest and penalties. I would suggest that you do not proceed with this.

Agree here.
14k is a lot of money tax free to be getting. It's one of the best deals revenue give us. Personally I think you would be nuts to jeopardise this. If you raise suspicion you risk paying tax on the whole 14k. Also once revenue get suspicious they can investigate for the last 7 years.
If you did as you describe in the opening comment for lets say four years before and then revenue investigate you, you could find that you owe tax on over 54k. For the sake of a few K in bills I wouldn't take a risk.
I saw this asked a few months ago. Someone said that the gf can gift 3k a year to you tax free. I thought this terrible advice. I you take in exactly 14k and gf gifts 3k and she lives there rent free without paying bills revenue would laugh at you.
14k is a generous tax break I'd be happy with that. You'll never be more clever than the tax man in the long run

Sleeper12

jimboyle wrote:

When a non owner occupier landlord, rents out a property, typially one of the tenants would be registered for the utility bills. In that case, that landlord would have nothing to do with the utility companies and whatever they charge the tenants. The landlord would not be in receipt of the utility bills and he would not be liable be liable to pay tax on that income.

jimboyle wrote:

I agree it is a bit of a grey area but would my proposed arrangement explicitly be breaking any rules?

It's not a grey area at all. You are comparing apples and oranges. You are talking what you want from landlord renting out property and trying to fit it in the rent a room scheme. Revenue won't fall for this

jimboyle

In spite of some of the responses here I still think it is a grey area. Someone said that if the bills aren't in your name, then it is not your main residence. That is just ridiculous statement. It seems to me that there is no specific rule in place that outlaws with what I am proposing. I agree that it goes against the spirit of the rules but is that enough for revenue to come after me at some point in the future?

Take this as an example: What if as the owner occupier landlord, I decide I don’t need a broadband connection. But one of my tenants decides that he does so he get the house connected and pays the bill himself. The other 2 tenant decide the chip in so they can use it also. Let’s say I don’t ever use his broadband so I don’t pay any money towards it and don’t even get the wifi code from them. This situation is a contract between the tenants and a private company which has nothing to do with me. I assume this would have no effect on me or my tax situation. But please correct me if I am wrong.

So if in the future one day I decide that I want in on the broadband, so I agree to pay my share of the cost to the tenant. Am I suddenly required to get the name on the broadband account changed to mine so that I can declare the broadband as extra income?

Clearly I don’t have any experience of dealing with revenue, hence all these questions. Someone gave an example here of the gf giving a tax free gift of 3k and living rent free. That would clearly be against the spirit of the rules, but is that all that is required for revenue to come after that person? If the law leaves a loophole like that in place, can they really punish someone who exploits it? Surely for them to come after you, they have to clearly show you which specific rule you are breaking.

What about an elderly parent who gives a 3k gift every year to each of her children to avoid them having to pay inheretence tax after she dies. Is that not a similar loophole?

CIARAN_BOYLE

First of all your gf is giving you a gift she in turn gets a gift of being allowed to stay rent free. Unfortunately that's called an exchange or rent. It's not a loophole.

Secondly the utilities are are considered by Revenue a basic part of living in a house. Therefore charging for them is charging rent. It doesn't matter who is providing them. It's not a loophole.

A licensee doesn't get utilities in their name. They aren't tenants they can be thrown out at any time. Utilities are the owners responsibility when an owner occupier. If the licensee wants broadband and the owner doesn't the landlord gets a data dongle. They have no business getting a broad band connection for the house.

Elderly person can decide to give 3k a year. They can't promise to give 3k a year to dodge inheritance tax. They are giving a separate gift each year which is within the rules. It's a loophole.

slovakchick

Clearly I don’t have any experience of dealing with revenue"-you will if you follow this path

davindub

My read of this is this is that sharing 3rd party bills (unrelated to person claiming relief) are not included within the threshold. It is actually not mentioned within the Revenue tax guide.

Charging the tenant for cleaning services provided by yourself, food would be examples of income to be included as part of the threshold. If you charge a flat rate to cover 3rd party bills by substance this could be considered income.

And this makes sense, when you add up household bills for the year, they quickly eat into the allowance e.g. 1200 for tv & broadband, a older house might have 3-4 k heating and electric, some idiot rings Australia once a day and runs up €1000 euro phone bill etc etc.

But to be certain contact Revenue, they will answer this for you.