Rent a Room Relief Query

danko82

Hi,
I was thinking to buy a property where I will live and rent 1/2 rooms, so something with 2/3 rooms in total.
For 2017 the amount is 14,000 so for example if the 2 room I rent are total 14000 in a year, am I not going to pay anything as taxes?

From revenue website

If your gross rental income does not exceed the above exemption limit, you do not pay Income Tax (IT), Pay Related Social Insurance (PRSI) or Universal Social Charge (USC).

If it does exceed the exemption limit, the total amount of income is taxed.

Am I understanding well? If the amount is 14500, I will pay taxes in the whole amount??
Does someone know what is the total amount of taxes you have to pay on it?

I am trying to see what is the business plan for both options.

Thanks

gerrybbadd

danko82 wrote: »

Hi,
I was thinking to buy a property and rent 1/2 rooms, so something with 2/3 rooms in total.
For 2017 the amount is 14,000 so for example if the 2 room I rent are total 14000 in a year, am I not going to pay anything as taxes?

From revenue website



Am I understanding well? If the amount is 14500, I will pay taxes in the whole amount??
Does someone know what is the total amount of taxes you have to pay on it?

I am trying to see what is the business plan for both options.

Thanks

Yes, it's due on the whole 14,500

The amount of tax you pay will depend on your income from other sources (work etc). If you are paying at the higher rate, tax due on the rental income will also be at the higher rate

mugsymugsy

Also it has to be your main residence. Banks also won't take into account this 'income' if you are applying for a mortgage.

danko82

gerrybbadd wrote: »

Yes, it's due on the whole 14,500

The amount of tax you pay will depend on your income from other sources (work etc). If you are paying at the higher rate, tax due on the rental income will also be at the higher rate

TBH that it sound ridiculous..
14000 at 0%
14500% at 40% (my current salary is above 35k)....
does it make sense?

gerrybbadd

danko82 wrote: »

TBH that it sound ridiculous..
14000 at 0%
14500% at 40% (my current salary is above 35k)....
does it make sense?

Whether or not it sounds ridiculous, that's the way it is.

The threshold is there to make you stay under that 14k

L'prof

€14k a year would pay for a mortgage of €295k in its entirety over 35 years. That's surely enough for you. No?

danko82

L'prof wrote: »

€14k a year would pay for a mortgage of €295k in its entirety over 35 years. That's surely enough for you. No?

I am not saying is enough or not.
I am saying it is not right in general.

Anyway as that's it, I will figure out a solution.

danko82

gerrybbadd wrote: »

Whether or not it sounds ridiculous, that's the way it is.

The threshold is there to make you stay under that 14k

Ok, I got it.

so If i have 2 rooms the rent has to be 7000 (583 euro/month) for year for each.

is it also possible to have mortgage relief?I mean the interests

gerrybbadd

danko82 wrote: »

Ok, I got it.

so If i have 2 rooms the rent has to be 7000 (583 euro/month) for year for each.

Yup, that's pretty much it!

danko82

gerrybbadd wrote: »

Yup, that's pretty much it!

thanks.

do you know if

is it also possible to have mortgage relief?I mean the interests

gerrybbadd

danko82 wrote: »

thanks.

do you know if

is it also possible to have mortgage relief?I mean the interests

Unfortunately no. Expenses don't count, neither does mortgage interest. It's calculated on the gross received

danko82

gerrybbadd wrote: »

Unfortunately no. Expenses don't count, neither does mortgage interest. It's calculated on the gross received

ok, thanks.

So the calculations is pretty done:

+ rent
- mortgage
- mortgage insurance
- normal expenses (like something wrong with furniture etc)
- other expenses or taxes?

Thanks

Graham

I'm not sure I'd view this as a 'business'.

It's tax relief to encourage people to rent out rooms in their own home.

danko82

Graham wrote: »

I'm not sure I'd view this as a 'business'.

It's tax relief to encourage people to rent out rooms in their own home.

in fact I am talking about that. (I updated the main topic to be more specific, thanks) ..I will rent out rooms in my own home where I will live in.

barneystinson

danko82 wrote: »

ok, thanks.

So the calculations is pretty done:

+ rent
- mortgage
- mortgage insurance
- normal expenses (like something wrong with furniture etc)
- other expenses or taxes?

Thanks

No.

No, no, no, no, no.

Rent a room relief is a tax exemption for people letting rooms in their principal private residence. It means the rents received are disregarded completely.

If you receive 14,001 in rent, you don't qualify for the exemption and you calculate taxable profit from your rental income in the normal way.
i.e.
Rent minus a proportion of mortgage interest (NB not the capital), minus any other expenses incurred wholly and exclusively against the rental income.

danko82

barneystinson wrote: »

No.

No, no, no, no, no.

Rent a room relief is a tax exemption for people letting rooms in their principal private residence. It means the rents received are disregarded completely.

If you receive 14,001 in rent, you don't qualify for the exemption and you calculate taxable profit from your rental income in the normal way.
i.e.
Rent minus a proportion of mortgage interest (NB not the capital), minus any other expenses incurred wholly and exclusively against the rental income.

i think I havent explained well what I mean.

I understood the Rent a room relief is a tax exemption for people letting rooms.
So let's say I rent two rooms for a total of 14k in a year, I do not pay other taxes.

So To see the cashflow of the property , I mean the expensive and the income I do the calculation:

+rent
- mortgage, etc

let's say these amounts for month
rents total: + 1150
mortgage - 1300
insurance -20
normal expenses (like something wrong with furniture etc) - 100
- 100other expenses or taxes?

TOTAL= + 1150-1300-20-100 -100 (other expenses??)=-370 euro/month
It is the amount I will pay to leave in my "own" (better to say the bank's house) house

Does it make sense now?

Thank you for your help.

thegolfer

I think what he is saying is, it will cost a net €370 per month to live in a €300,000 house. The cost of living there, not the taxation implications..

Another point, it's not only rent, but also utility expenses you may collect which are counted towards the €14000. Sky/Esb/Gas etc could also add up to considerable sums too.

relax carry on

danko82 wrote: »

barneystinson wrote: »

No.

No, no, no, no, no.

Rent a room relief is a tax exemption for people letting rooms in their principal private residence. It means the rents received are disregarded completely.

If you receive 14,001 in rent, you don't qualify for the exemption and you calculate taxable profit from your rental income in the normal way.
i.e.
Rent minus a proportion of mortgage interest (NB not the capital), minus any other expenses incurred wholly and exclusively against the rental income.

i think I havent explained well what I mean.

I understood the Rent a room relief is a tax exemption for people letting rooms.
So let's say I rent two rooms for a total of 14k in a year, I do not pay other taxes.

So To see the cashflow of the property , I mean the expensive and the income I do the calculation:

+rent
- mortgage, etc

let's say these amounts for month
rents total: + 1150
mortgage - 1300
insurance -20
normal expenses (like something wrong with furniture etc) - 100
- 100other expenses or taxes?

TOTAL= + 1150-1300-20-100 -100 (other expenses??)=-370 euro/month
It is the amount I will pay to leave in my "own" (better to say the bank's house) house

Does it make sense now?

Thank you for your help.

Think you are talking about 2 different things here.

The first 1 is taxation of rental income. If you rent out rooms in your house and meet the rent a room tax relief terms and conditions, then that's 14000 tax free income for for the year which you wouldn't otherwise have to pay off your mortgage.

The second thing you are talking about is cashflow in relation to a business which is not really what is going on here as you as a private individual are renting rooms out in your PPR. Your calculations above have you essentially getting your mortgage on your property mostly funded by rental income in comparison to someone who lives in their own house and pays their mortgage in full from their normal income.

gerrybbadd

danko82 wrote: »

So To see the cashflow of the property , I mean the expensive and the income I do the calculation:

+rent
- mortgage, etc

let's say these amounts for month
rents total: + 1150
mortgage - 1300
insurance -20
normal expenses (like something wrong with furniture etc) - 100
- 100other expenses or taxes?

TOTAL= + 1150-1300-20-100 -100 (other expenses??)=-370 euro/month
It is the amount I will pay to leave in my "own" (better to say the bank's house) house.

What you've calculated out there would be if you were renting a whole house out privately.

Essentially, there are no allowable deductions against the 14K threshold. You can't use any of the listed expenses to reduce rental income down below the 14K threshold limit.

These expenses however, can be used to reduce taxable income on rents received in respect of private rented accommodation (well, not the mortgage itself, but an element of the interest paid on the mortgage).

In effect, the threshold allows you to earn 14k GROSS tax free. There's no way to add additional tax free amounts by adding on expenses.

bmwguy

Where will you buy this house OP? Most rooms around the country rent for less than 7k a year so even with 2 rooms you will probably be under the 14k threshold so you will pay no tax.

Even if market rate is more than that don't charge it to keep yourself below or else taxable on entire income.

danko82

thegolfer wrote: »

Another point, it's not only rent, but also utility expenses you may collect which are counted towards the €14000. Sky/Esb/Gas etc could also add up to considerable sums too.

What are you talking about? :rolleyes::pac::pac:
That's absolutely false. the expenses are not counted towards the 14k.
Please don't add false information. stop misinformation;)

if you split the bills that does NOT matter with that calculation.

danko82

bmwguy wrote: »

Where will you buy this house OP? Most rooms around the country rent for less than 7k a year so even with 2 rooms you will probably be under the 14k threshold so you will pay no tax.

Dublin.

In dublin might be enough 1 room to reach 14k.
I have different friends paying above 1k month for a double bedroom ensuite.

danko82

relax carry on wrote: »

The second thing you are talking about is cashflow in relation to a business which is not really what is going on here as you as a private individual are renting rooms out in your PPR. Your calculations above have you essentially getting your mortgage on your property mostly funded by rental income in comparison to someone who lives in their own house and pays their mortgage in full from their normal income.

It is NOT related to a business they are simply calculation i am doing on my pocket..
it is not difficult to understand..

barneystinson

danko82 wrote: »

What are you talking about? :rolleyes::pac::pac:
That's absolutely false. the expenses are not counted towards the 14k.
Please don't add false information. stop misinformation;)

if you split the bills that does NOT matter with that calculation.

See paragraph 5.2 of Revenue's manual on the subject (http://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-07/07-01-32.pdf):
"The income that is taken into account in determining whether the relief applies is the amount arising to an individual for the use of a room or rooms in the qualifying residence in respect of their use as residential accommodation. Any amounts arising for meals, cleaning, laundry or other similar goods and services that are incidentally provided in connection with the residential use are also taken into account."

danko82

barneystinson wrote: »

See paragraph 5.2 of Revenue's manual on the subject (http://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-07/07-01-32.pdf):
"The income that is taken into account in determining whether the relief applies is the amount arising to an individual for the use of a room or rooms in the qualifying residence in respect of their use as residential accommodation. Any amounts arising for meals, cleaning, laundry or other similar goods and services that are incidentally provided in connection with the residential use are also taken into account."

where do you see bills?you are talking about Sky/Esb/Gas and they are bills.
they are NOT going to arising the amount. I don't see any link to them.

barneystinson

danko82 wrote: »

where do you see bills?you are talking about Sky/Esb/Gas and they are bills.
they are NOT going to arising the amount. I don't see any link to them.

"other similar goods and services that are incidentally provided in connection with the residential use are also taken into account".

So if you live in a house and have the use of, and pay towards the cost of, broadband, TV, electricity and heating. Or do you think that heating and electricity aren't services that are incidental to you living in a house...?!

danko82

barneystinson wrote: »

"other similar goods and services that are incidentally provided in connection with the residential use are also taken into account".

So if you live in a house and have the use of, and pay towards the cost of, broadband, TV, electricity and heating. Or do you think that heating and electricity aren't services that are incidental to you living in a house...?!

ok, cheers. I will call revenue

riclad

Simply charge an annual rent of 13,950 and you wont have to pay tax.
The 14k amount might also include charges for esb, gas , cable tv etc ,
look on the revenue.ie website ,
under rent a room .

bmwguy

riclad wrote: »

Simply charge an annual rent of 13,950 and you wont have to pay tax.
The 14k amount might also include charges for esb, gas , cable tv etc ,
look on the revenue.ie website ,
under rent a room .

Yes it's as simple as that. Just charge a set amount under 14k a year. This thread got way too complex.