Short term lettings of free space in houses through websites such as Airbnb has soared in the last few years. Initially there was confusion as to whether income from letting a room in your own home on a short term basis could qualify for an exemption from Income Tax under Rent a Room Relief. Revenue has conﬁrmed that short term lettings advertised through online accommodation sites do not qualify for Rent a Room Relief. In fact income from short term lettings is classiﬁed as a business income. To that end direct expenses such as light and heat, accountancy, cleaning are allowed as a deduction in arriving at taxable income.
Where income from short term lettings exceeds €37,500, the taxpayer is obliged to register for VAT and charge VAT at 9% on short term lettings. VAT can then be reclaimed on business expenses. When an individual sells their own home they can usually avail of Principal Private Residence Relief to ensure that any gain on the sale of the property is exempt from Capital Gains Tax. However Revenue has conﬁrmed that where a room in a property is used exclusively for business purposes Principal Private Residence Relief is restricted.
It is best to get the right advice from the outset to ensure you minimise any exposure to tax where your income from short term lettings is likely to be signiﬁcant.