Exceeding Rent a room relief threshold - Mortgage Interest deduction allowed?

thewiseowl12

Hi,

Grateful for any experience of the following issue.

Partner exceeded the rent a room relief on her dwelling for 2019 as she split the bills between tenants instead of covering them, and thus exceeded the threshold of 14k. Thus all the rental income is taxable (15,500).

If mortgage interest an allowable expense? I can't find any guidance on this? I know that repairs/wear and tear etc is.

My understanding is that for mortgage interest to be deductible the tenancies had to be registered with PRTB, however this is a case where an individual was living in the property and thus did not have to register it whilst absentmindingly exceeding threshold.

davindub

thewiseowl12 wrote: »

Hi,

Grateful for any experience of the following issue.

Partner exceeded the rent a room relief on her dwelling for 2019 as she split the bills between tenants instead of covering them, and thus exceeded the threshold of 14k. Thus all the rental income is taxable (15,500).

If mortgage interest an allowable expense? I can't find any guidance on this? I know that repairs/wear and tear etc is.

My understanding is that for mortgage interest to be deductible the tenancies had to be registered with PRTB, however this is a case where an individual was living in the property and thus did not have to register it whilst absentmindingly exceeding threshold.

Utilities once shared between all occupatants are not deductions or income to the householder and can be excluded, ring revenue to confirm that.

davindub

In calculating allowable expenses for case 5 if rar does not apply, some mortgage interest would be allowable.

E.g. 1 occupant out of 4, maybe 1/4 of the allowable interest would be reasonable.

davindub

Finally regarding RTB, there is an exception from the act if the landlord resides in the building. It has no relevance to income tax though.

For rar to apply, your wife must have the property as her sole or main residence..

thewiseowl12

Many thanks for the reply davindub.

Could you please elaborate on what rar and case 5 is?:

In calculating allowable expenses for case 5 if rar does not apply, some mortgage interest would be allowable.
E.g. 1 occupant out of 4, maybe 1/4 of the allowable interest would be reasonable.


The house is my girlfriends sole residence. She went over 14k in rent alone from 2 tenants (including myself!), and we want to be above board on it.

I guess the RTB act says that you are exempt from registering if you live there. So as she is one of the three residents thus potentially 2/3's of the mortgage interest is tax deductible I guess is what you are saying?

I know that there is a need for tax advice on the matter, just hoping someone has some experience to guide thoughts before engaging with the revenue.

antoinolachtnai

The interest is not going to make much difference to the liability on 15 grand at the higher rate.

A thought experiment: imagine if someone's girlfriend had turned out to have made a mistake in her calculations and discovered she needed to give her boyfriend a refund of 1500 euros of the rent from 2019 as a result of her miscalculation.

The boyfriend might spontaneously decide to make his girlfriend a gift of 1500 euros which might not be subject to any CAT.

This is not advice of course, just a thought experiment. The girlfriend in the scenario would of course have to have her own advice on how to deal with any miscalculation she might or might not have made.

thewiseowl12

Hi antoinolactnai,

The interest is not going to make much difference to the liability on 15 grand at the higher rate.
The interest for the year is €6,000, which is 66% deductible would reduce the tax liability to €11,000 before wear and tear.

A thought experiment: imagine if someone's girlfriend had turned out to have made a mistake in her calculations and discovered she needed to give her boyfriend a refund of 1500 euros of the rent from 2019 as a result of her miscalculation. The boyfriend might spontaneously decide to make his girlfriend a gift of 1500 euros which might not be subject to any CAT.


I think Revenue would severely query that if she was ever audited. She would prefer to be straight up, even if its at the cost of a a few thousand €.

Borzoi

thewiseowl12 wrote: »

Hi,

Grateful for any experience of the following issue.

Partner exceeded the rent a room relief on her dwelling for 2019 as she split the bills between tenants instead of covering them, and thus exceeded the threshold of 14k. Thus all the rental income is taxable (15,500).

If mortgage interest an allowable expense? I can't find any guidance on this? I know that repairs/wear and tear etc is.

My understanding is that for mortgage interest to be deductible the tenancies had to be registered with PRTB, however this is a case where an individual was living in the property and thus did not have to register it whilst absentmindingly exceeding threshold.

Rebate 750 to each tenant, clearing the over payment, down to 14.

Computer Science Student

antoinolachtnai wrote: »

The interest is not going to make much difference to the liability on 15 grand at the higher rate.

A thought experiment: imagine if someone's girlfriend had turned out to have made a mistake in her calculations and discovered she needed to give her boyfriend a refund of 1500 euros of the rent from 2019 as a result of her miscalculation.

The boyfriend might spontaneously decide to make his girlfriend a gift of 1500 euros which might not be subject to any CAT.

This is not advice of course, just a thought experiment. The girlfriend in the scenario would of course have to have her own advice on how to deal with any miscalculation she might or might not have made.

I would advise you to not encourage tax evasion.

davindub

thewiseowl12 wrote: »

Many thanks for the reply davindub.

Could you please elaborate on what rar and case 5 is?:

In calculating allowable expenses for case 5 if rar does not apply, some mortgage interest would be allowable.
E.g. 1 occupant out of 4, maybe 1/4 of the allowable interest would be reasonable.


The house is my girlfriends sole residence. She went over 14k in rent alone from 2 tenants (including myself!), and we want to be above board on it.

I guess the RTB act says that you are exempt from registering if you live there. So as she is one of the three residents thus potentially 2/3's of the mortgage interest is tax deductible I guess is what you are saying?

I know that there is a need for tax advice on the matter, just hoping someone has some experience to guide thoughts before engaging with the revenue.

Rar = rent a room relief

Case V (5) is the income tax category.

In regards expenses, it is self assessment, there are rules but where something is a judgement call, e.g. allocation of expenses such as insurance etc, it is up to you to justify it. Claiming 100% would not be reasonable, maybe allocate based on room size would be. Just calculate the taxable income and makes notes on the rationale behind the figures you are using.

I've just noticed you are one of the tenants? If it is your partner, maybe think about the money you have transferred over, sharing living expenses between a couple wouldn't really be rent would it?

thewiseowl12

Hi davindub,


In regards expenses, it is self assessment, there are rules but where something is a judgement call, e.g. allocation of expenses such as insurance etc, it is up to you to justify it. Claiming 100% would not be reasonable, maybe allocate based on room size would be. Just calculate the taxable income and makes notes on the rationale behind the figures you are using.


Thanks for that, its certainly food for thought. I've never dealt with the revenue really so I'm presuming something like 2/3 (given 2 tenants and one owner) mortgage interest allowable and 2/3 of other house related expenses such as insurance would possibly be reasonable.

At least she now have something to ask/propose to revenue.

Thanks again

davindub

thewiseowl12 wrote: »

Hi davindub,


In regards expenses, it is self assessment, there are rules but where something is a judgement call, e.g. allocation of expenses such as insurance etc, it is up to you to justify it. Claiming 100% would not be reasonable, maybe allocate based on room size would be. Just calculate the taxable income and makes notes on the rationale behind the figures you are using.


Thanks for that, its certainly food for thought. I've never dealt with the revenue really so I'm presuming something like 2/3 (given 2 tenants and one owner) mortgage interest allowable and 2/3 of other house related expenses such as insurance would possibly be reasonable.

At least she now have something to ask/propose to revenue.

Thanks again

For the amount of tax you might end up paying (circa 52% of income less expenses) perhaps an accountant would be a good investment? For this kind of return it would be in around 300 euros (also deductible from taxable income) in the smaller practices.

It would be better not to ask revenue too many questions about how to calculate your return, they will generally help but they are not going to help you minimise your tax bill and might flag the return as high risk.