Most income earned in Ireland is subject to income tax. Depending on the income slab, you will either pay 20% of the income (Standard Rate) or 40% of the income (Higher Rate) as taxes to the Government. So if you are looking at ways to increase your monthly income, your best option is to rent that spare room(s) in your house to private tenants. It could be one of the main room(s) in your house, a basement flat or even a garage converted to a room and attached to your house.
The Revenue introduced the “Rent-a-room” scheme where the rental income earned (by individual taxpayers) will be exempted from tax, provided the income does not exceed the exemption limit.
How does this work?
1. The Rent-a-room scheme is open to all owners and tenants in the State who rent out room(s) or accommodation in their main house. The residence should fall under one of these categories –
a. Primary residence – You necessarily need not to be the owner however the house should be your primary residential property in Ireland. You can even sub-rent the room to another person in which case, make sure your landlord knows about this.
b. Self-contained units such as a basement flat, garage converted into a living room that is connected to your primary residence.
2. According to the Revenue, the annual exemption limit (since 2018) is €14,000 per year. The limit applies to the gross income received for the rented room. This includes any additional amount paid by the tenant for other services like food, laundry, and other services.
3. The rented property should be used for the long term by the tenant.
4. If you are self-assessed, you can use the Revenue Online Service (ROS) to include the amount on your Form 11. If you use the Pay As You Earn (PAYE) system, you can use myAccount to include the amount on your Form 12. Taxpayers have a four-year time limit to claim relief for the tax paid on the rental income over the previous years.
You cannot qualify for the Rent-a-room tax relief if –
1. Your rental income exceeds €14,000 per year
2. You rent out the property for short time periods (such as a guest-house, an Airbnb accommodation, or through an online portal)
3. You rent the property for business purposes or if your employer pays you for the accommodation provided in your family home
4. The property is rented to your partner, daughter or son. There are no restrictions for other family members.
Upon qualification for Rent-a-room tax relief, the income is not liable for Pay Related Social Insurance (PRSI), the Universal Social Charge or income tax. But, the income must be included in the income tax return. There’s also no need for you to register as a landlord with the Private Residential Tenancies Board (PRTB). This makes it easier for you to rent rooms to a tenant and comes with fewer restrictions and paperwork.
Additionally, there is no effect on other reliefs and taxes such as Mortgage Interest Relief, Owner-Occupier Relief. There will also be no capital gains exemption when you dispose of the residence.