Renting a room in your home can be a great way to earn extra income, but did you know it could also be tax-free? The rent-a-room relief scheme is a popular option for homeowners in Ireland who want to rent a room without the hassle of paying extra taxes.
In this blog post, we’ll cover everything you need to know about the scheme, including:
- What is rent-a-room relief?
- The benefits of the rent-a-room scheme for landlords
- Do I qualify for the rent-a-room relief scheme?
- What isn’t covered by the rent-a-room scheme?
- How to apply for rent-a-room relief?
- How can Irish Tax Rebates help you with your tax?
- FAQs
What is rent-a-room relief?
The rent-a-room relief scheme lets homeowners in Ireland rent out a room in their home and make up to €14,000 a year – completely tax-free. The scheme’s purpose is to encourage people to offer affordable accommodation without getting hit by extra taxes on their income.
The benefits of the rent-a-room scheme for landlords
If you’re a homeowner thinking about renting out a room, the rent-a-room relief scheme comes with great benefits that can simplify your decision-making process.
Let’s take a look at why this scheme might be a great choice for you.
- Tax-free income: You can make up to €14,000 a year from renting out a room, and the best part? You won’t pay any tax on that money. With the average monthly rent now at €1,544 according to the Residential Tenancies Board (2023), this extra income can make it significantly easier to manage your bills.
- Extra income: Renting out a room can give you a steady stream of income with minimal effort. This extra income can help you pay your mortgage, save for holidays, or tackle home renovations, making your unused space valuable.
- Simplified tax process: You don’t have to deal with extra tax forms as long as you stay under the earnings limit. This makes it easier to keep track of your money and enjoy having a tenant without worrying about regulations. Plus, you can report any income from the rent-a-room scheme in your basic Form 12, which is easy to submit online.
- Long-term savings: When you keep your rental income tax-free, you end up with more money over time. Those extra savings can add up and help you plan for your financial future, like saving for retirement.
Do I qualify for the rent-a-room relief scheme?
You don’t necessarily have to own the property to qualify for rent-a-room relief. Even if you’re a tenant, you can sub-let a room to someone else—just make sure to check with your landlord first.
Since December 2023, local authority tenants can rent a room to a third-level student and earn up to €14,000 tax-free. Just make sure to get approval from your local authority first.
What is the exemption limit to rent a room tax relief?
The exemption limit for the rent-a-room relief scheme is €14,000 per year. That means you can earn up to this amount from renting out a room without paying any tax. If you go over that limit, you’ll need to pay tax on all your rental income, not just the amount over €14,000. It’s important to keep track of how much you’re making to stay within the tax-free zone.
What isn’t covered by the rent-a-room scheme?
The rent-a-room relief scheme provides a fantastic opportunity for homeowners, but there are specific situations that aren’t covered.
Here are three things you should know:
- Renting to family members: You can’t rent a room to your immediate family, such as parents, siblings, or children, and still qualify for tax relief. This ensures that the scheme is used primarily for non-family tenants.
- Short term rentals: The rent-a-room relief doesn’t apply if you rent out a room to guests for less than 28 days. For example, if you use an online booking site to rent to occasional visitors, that income won’t qualify because those guests are just staying for a short time. But, if you rent out a room to a student for a full academic year, that income does qualify.
- Work-related rental arrangements: If you work for a company and they pay you to let clients use a room in your home, that income doesn’t qualify for the rent-a-room relief. Instead, it’s seen as payment for services, not rental income.
How to apply for rent-a-room relief?
To apply for rent-a-room relief, just include your tax-free rental income on your annual tax return. If you’re a PAYE taxpayer, you can file your return online using Revenue’s myAccount Service (Form 12). If you’re self-employed or have other income, use the Revenue Online Service (ROS) to submit your Form 11.
Need help with the claiming process?
Irish Tax Rebates is here to simplify things for you!
How can Irish Tax Rebates help me with my tax?
If you’re considering the rent-a-room scheme, Irish Tax Rebates can be your best ally. Our experts will help you navigate the application process with ease. Whether you’re unsure about the eligibility criteria or how to maximise your benefits, our team is there to assist you every step of the way. With Irish Tax Rebates on your side, you can confidently tackle the claims process and make the most of the rent-a-room relief. Contact us today!
FAQs about the rent-a-room scheme
Are there any disadvantages of the rent-a-room relief scheme?
One disadvantage of the rent-a-room relief scheme is that if your rental income exceeds €14,000, you’ll have to pay tax on all your earnings, not just the amount over that limit. Also, you can’t rent to family members or short-term guests for less than 28 days.
Can you opt out of rent-a-room relief needed?
Yes, you can choose to opt out of the rent-a-room relief scheme at any time. If you decide it’s not right for you, simply stop claiming relief on your tax return.
Does rent-a-room have to be registered with the RTB?
No, you don’t have to register with the Residential Tenancies Board (RTB) as you are not covered by landlord/tenant legislation in Ireland.
Should I keep a record of a tenant agreement?
Absolutely, keep a record of your tenant agreement. It helps lay out the terms of the rental and can serve as proof if you need it later. Having everything in writing keeps things clear and avoids any miscommunication down the line.
