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Tax Treatment of the provision of Accommodation (Short Term and Long Term)

General

Over the last number of years there has been a significant rise in the number of people letting residential property on a short term basis. Platforms such as Airbnb have facilitated and accelerated this trend. Such short term lettings have proven controversial, not just in Ireland but internationally as well. Some cities have clamped down on short terms lettings, whether for being “unlicensed” or for being in breach of planning permission.

The Irish Government recently announced that they intend to introduce regulations for short-term lettings, originally with the intention that the regulations would come into force in June 2019. Under the proposed regulations properties will require planning permission to be used for tourism/short term letting purposes. Landlords may therefore have to seek planning permission for a change of use. Individuals will still be entitled to let their private residence without applying for planning permission but not for more than 14 days at a time and not longer than 90 days in the year.

Taxation

Notwithstanding the legal considerations, the tax treatment of the income from such lettings has also given rise to a number of complexities for taxpayers. In this regard, in 2018 Revenue published detailed guidance on their treatment of short term rentals, summarised below:

Schedule D Case I (Trading Income): Where a property owner lets the property frequently and on a commercial basis with a view to the realisation of profit, revenue regard the income as trading income taxed under Case I. This includes income received from accommodation booked online through booking sites like Airbnb. If the turnover from letting the property exceeds €37,500 per annum, the landlord will be required to register and charge VAT on the lettings.
Schedule D Case IV (Occasional Income): Income received from short term lettings on a once off, casual or occasional basis will be taxable as occasional income under Case IV. Capital allowances are not available and only expenses incurred directly in the provision of the accommodation will be deductible. Annual and incidental costs such as insurance and general maintenance costs are not allowable deductions.
Schedule D Case V (Rental Income): If the accommodation is being provided under a landlord and tenant arrangement (longer term letting) the income is taxed as rental income under Case V. Income from such rentals should still qualify for rent a room relief, provided the conditions are satisfied.

Rent a room relief

Revenue had stated in their guidance notes that “Rent a room relief” did not apply to income from short term lettings, such as Airbnb type income. However, Revenue guidance notes are not law, merely the Revenue’s interpretation of the law. In Finance Act 2018 the Government took the opportunity to amend the Rent a room relief provisions in an attempt to bring closure to the matter and to specifically exclude short term lettings (with certain exceptions). The new provisions provide that in order for rent a room relief to apply, the property must be used by the occupant for more than 28 consecutive days. There are a number of important exceptions in the legislation:

The occupant is resident/ordinarily resident in Ireland and is incapacitated by reason of physical or mental infirmity (e.g. respite care)
The room is occupied for 4 days p/w for not less than 4 consecutive weeks (e.g. exchange students)
The occupant is in full or part time education (e.g. student digs arrangements)

The legislation is very clear that where a taxpayer seeks to rely on one of the above exceptions Revenue may require the individual to provide proof of their entitlement to the relief.

The above changes are effective for the 2019 tax year and subsequent tax years.

Case V - Relief for interest on borrowings

On a positive note, Finance Act 2016 had restored mortgage interest relief on a phased basis for interest on borrowings applied in the purchase, improvement or repair of rented residential property. The percentage of interest qualifying for tax relief was set to increase to 90% in 2019 and 100% in 2020. Finance Act 2018 has accelerated the timeframe providing for 100% interest relief for qualifying borrowings with effect from 1 January 2019.

Return to Tax Issue - Spring 2019