Our property finance expert answers your questions
QI bought a Section 23 property in 2005 on which I claimed the relevant tax relief at the time. This property now has losses in excess of €100,000. I have a second property which has a gain of a similar amount. I would like to sell these properties to my son but will I be able to offset the loss against the capital gain or does the Section 23 tax break affect this?
A
The loss you are referring to is known Case V loss, which is rental loss.
Eileen Devereux, commercial director with
Taxback.com says: “As you may be aware, Section 23 relief means that if you incurred a qualifying expenditure, the full cost of expenditure could be set of against your rental income. So, in your case the excess (Case V loss) could be carried forward to cover future rental income profits (Case V income).
There is a clawback provision which kicks in if the Section 23 property is disposed of within 10 years.
However, in your case, you will be disposing of the property after the relevant 10-year period so there will be no clawback of the relief.
However, losses incurred under Section 23 relief are not an allowable deduction against Capital Gains Tax, and so the full cost of property would be used when computing the capital gains tax liability.” Q I am living on the old age pension and could do with some extra income. It has been suggested to me that I can rent out a room in my home and keep all of the rent from this without paying tax on it. However, do I have to report it, and how does it work? It would be very helpful to me as I have a room which would be suitable in this regard and could also do with the company.
A
Rent-a-Room relief does indeed allow you to earn up to €14,000 a year without registering as a landlord, providing a rent book or indeed, paying income tax on the earnings. For you to qualify your home must be located in the State and you must occupy it as your sole residence during the year of assessment. This means that it is your home for the greater part of the year and is where people would normally expect to make contact with you, according to Revenue rules and yes, you must declare it as income on an annual tax return.
However, there is an anomaly, by design, in the rules. You tell me you’re on the ‘old age’ pension, without saying whether it is the Non-Contributory or Contributory pension. This matters, as one is means-tested while the other is not.
Generally speaking if you have additional income of any sort, it can be considered ‘means’ by the Department of Employment Affairs and Social Protection (DEASP) and your pension reduced.
There are limits to this and derogations from it, which can be found on the department’s website
(welfare.ie) or at your local Citizen’s Information Office. I asked the department how it treats Rent-aRoom income (normally tax exempt) in this case. Its response? “While in general, recipients of meanstested social assistance payments from DEASP will have any rental income they receive assessed as means and this may affect their payment, recipients of State Pension (Non-Contributory), Widow’s/ Widower’s or Surviving Civil Partner’s (NonContributory) Pension will not have rental income assessed as means, where they would be living alone unless they rented out a room in their home.”
What this should mean is that if you are currently living alone the additional income won’t matter, however, it’s not entirely clear from your letter whether or not you are married, and if so, then it could certainly be taken into account.
As an aside, the rent can include utilities, laundry etc, and if you are taking in a lodger it’s a good idea to set out strict ground rules on what you are providing (or not), and how you feel about guests staying, loud music, comings and goings and those other things that may annoy you in time.