Falling outside rules on rent-a-room scheme can prove costly

I currently run my principal private residence as an Airbnb. I rent out one room or the whole house.

I also have a one-bed basement apartment. I previously rented the apartment under the rent-a-room scheme, but I now Airbnb it.

Could I rent out again under the rent-a-room and just do the Airbnb in the main house? Would I qualify for the rent-a-room scheme?

Ms T M

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You may have a little problem here, but it really depends on the location of your two properties.

Rent-a-room relief is one of the few really valuable tax breaks available to ordinary consumers – along with the likes of the small gift exemption and pension tax relief. It allows you to earn up to €14,000 in tax-free income every year. That’s equivalent to a €27,000 pay rise for a PAYE taxpayer already in the 40 per cent income tax band.

Unsurprisingly, there are some rules involved to be eligible for the scheme, which, it is important to remember, is designed to make the most of existing accommodation.

First up, the relief only applies when you rent out a room in your home – ie your principal private residence – the address at which you reside for the guts of the year.

[ Budget 2024, by a renter, a landlord, a teacher and more: ‘We are the squeezed middle’ ]

There are other rules making sure there is no fiddling around with the €14,000 cap, and a provision that if you step even one euro over that mark, all the income you receive for renting the room will become liable for tax, but it is that first hurdle that is going to trip you – unless this self-contained basement apartment is actually part of the same building as your family home.

A self-contained unit – such as a basement apartment, granny flat or converted garage – will qualify for rent-a-room relief as long as it is physically attached to the family home. And, being a one-bed unit, it may well be that this is the case here; otherwise I suspect that Revenue would have twigged before now.

Otherwise, you are looking to apply for rent-a-room relief for an apartment you do not occupy. That would make it an investment property, which would automatically rule it out of the rent-a-room scheme.

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More concerning for you in that case is that you would have made yourself liable to a Revenue clawback – and possibly even penalties.

You say you rented out the one-bed apartment previously under rent-a-room. If you weren’t living there, you were not eligible to do so – unless it meets the rules by being physically attached to your home. In that scenario, any of the income up to €14,000 that you claimed relief on for those years would have been liable to income tax, PRSI and USC.

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Revenue will still consider that money due, regardless of how far back it was, because you would have made a false declaration. And if and when they twig it, they will very likely also charge interest and penalties because of a deliberate misstatement of tax liability.

So you could be in a bit of a bind here. ‘Fessing up to Revenue before they get to you would lead to lower interest and penalty charges, but you would still have that tax bill of just under €6,800 to pay for each year the relief was wrongly claimed if you are a higher rate taxpayer, or just under €4,000 for a low-rate taxpayer.

Of course, if this apartment is physically attached to your home, you will have no worries on this account.

Making choices

So much for the past: what about going forward?

If the one-bed apartment is attached to your home, you can revert to renting it out under rent-a-room relief as long as you stay within the income rules and those mandating that stays there must be for a minimum of 28 days; if it isn’t attached to your home, you cannot.

Whether you continue to rent it under Airbnb rules or rent-a-room is obviously your choice – as long as it complies with rent-a-room eligibility – but the rules on Airbnb itself are getting more strict all the time.

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If you are renting out a room while still living there – homesharing – you are okay, as this is exempt. But where you rent out the whole property, you will require planning permission if you do so for more than 90 days in a year and you are living in one of the 54 rent pressure zones across the State. And if it is not your home – your principal private residence – and you are in one of those rent pressure zones, it will require planning permission anyway.

I am not aware of any exemption to those planning rules for accommodation that may be separate to, but attached to, the main home along the lines of the relief granted under the rent-a-room scheme.

Even if you are under that limit, you now need to register the property with your local authority, using a Form 15. If you google that, or contact your local council, they will point you in the right direction. That form needs to be completed every year, unless you tip over the 90-day limit, in which case you are working under planning law.

New rules, which have been delayed but are now expected to come into force next year, will require you to register with Fáilte Ireland or face financial penalties. The platforms – such as Airbnb – will also face fines, far heavier ones, so you can expect them to insist on all properties listed being properly registered or being taken down off the site.

Clearly, any Airbnb income is liable to income tax, PRSI and USC.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice