Quick Q on the Rent A Room Scheme

air

Hi,
I was told recently that if you earn more than the allowable annual limit (7620 euro) that you have to pay tax on the entire rental income rather than on the bit you exceed the limit by.
Is this true?
I.E. if you earned 7620 euro in the year you pay no tax, if you earn 7621 you pay tax at the standard rate on the whole lot?

Oasis Page on the Subject

Kinetic^

air wrote:

Hi,
I was told recently that if you earn more than the allowable annual limit (7620 euro) that you have to pay tax on the entire rental income rather than on the bit you exceed the limit by.
Is this true?
I.E. if you earned 7620 euro in the year you pay no tax, if you earn 7621 you pay tax at the standard rate on the whole lot?

Oasis Page on the Subject

Correct, its either 0% on €7620 or less or 20%/42% (whichever it may be) on €7621 or above.

LegacyUser

air wrote:

Hi,
I was told recently that if you earn more than the allowable annual limit (7620 euro) that you have to pay tax on the entire rental income rather than on the bit you exceed the limit by.
Is this true?
I.E. if you earned 7620 euro in the year you pay no tax, if you earn 7621 you pay tax at the standard rate on the whole lot?

Oasis Page on the Subject

it's also per house, not per person, ie, if you've bought a house with a friend, the rental income you're aloud is not €7620, it's only half that

air

Yeah I knew it was per house alright, that doesnt effect me. Handy to know re. the limit though, seems a bit harsh but I guess that's the rules & the exemption is pretty good anyway.

Hitchhiker's Guide to...

Keyser Soze 69 wrote:

Correct, its either 0% on €7620 or less or 20%/42% (whichever it may be) on €7621 or above.

are you sure it is 42% - is it not just the 'standard rate' for all income levels - i.e. 20% ?

Kinetic^

Roundtower2 wrote:

are you sure it is 42% - is it not just the 'standard rate' for all income levels - i.e. 20% ?

Well if you're making over the 20% band then its going to be taxed at 42%.

Hitchhiker's Guide to...

does that mean its worth setting up a limited company if you are expecting to earn more than the 8k mark? (in which case deductions etc can be deducted from the taxable amount, and the corporation tax is less than personal tax?)

betterthanyou

Roundtower2 wrote:

does that mean its worth setting up a limited company if you are expecting to earn more than the 8k mark? (in which case deductions etc can be deducted from the taxable amount, and the corporation tax is less than personal tax?)

then to get the money out of the company you would have to pay tax, dividend or income

Kinetic^

Roundtower2 wrote:

does that mean its worth setting up a limited company if you are expecting to earn more than the 8k mark? (in which case deductions etc can be deducted from the taxable amount, and the corporation tax is less than personal tax?)

Well it depends really.

If you're planning on paying yourself from the limited company's profits, then you're going to pay 42% PAYE + 5% PRSI if you're making over the lower band.

Or if you decide to just let it accumulate in the company, then you'll be paying 25% corporation tax on your profits. Then if you leave the funds sitting in the company you'll get taxed on the funds that are not distributed.

So basically, you're going to pay tax one way or the other, there's no way around it.

Hitchhiker's Guide to...

i suppose...

...although corporation tax is 12.5%...

Kinetic^

Roundtower2 wrote:

i suppose...

...although corporation tax is 12.5%...

Yes but then if you want to take the money out of the company as pay, you're back to the 42% again.

The company couldn't actually claim the rent a room relief anyway as a company can't have a principal private residence.

air

If you were to go away for the year I assume that anything up to your tax free allowance would be tax free (assuming you had no other income in the year)?
Just trying to find out the consequences of different scenarios / decisions, thanks for all the help so far.

RainyDay

Roundtower2 wrote:

does that mean its worth setting up a limited company if you are expecting to earn more than the 8k mark? (in which case deductions etc can be deducted from the taxable amount, and the corporation tax is less than personal tax?)

A property owned by a company can't claim the rent-a-room scheme. Why would you want to set up a limited company? Have you any idea of the legal obligations of company directors? Of the costs of preparing accounts each year? Of the fines that CRO will apply when your accounts are late? Crazy idea....

Where an individual is renting out a property (not under rent-a-room), you can claim mortgage interest & other expenses as deductions from the taxable amount.