Taxation Implications of Short Term Accommodation

21 May 2018

With an increasing number of people receiving income from the provision of short-term accommodation, Revenue have recently published new guidelines on the taxation treatment of such income.

Is it Rental Income?

A key aspect to determining this is whether or not the accommodation is provided under a landlord and tenant arrangement. Legally under such an arrangement, a lease is said to exist and the profits are assessable as rental income under Case V. However, the provision of short-term accommodation will not create such an arrangement. There is no lease. The person occupies the property by way of a licence as a guest and does not enjoy exclusive possession of the property. The owner continues to have the right to access the property. Thus profits from short term guest accommodation will be liable to tax under Case I or Case IV.

Rent-a-room relief is not available in respect of short term guest accommodation.

Case I or Case IV?

Trading income is liable to tax under Case I. The key to determining whether a trade – i.e. a business - exists will be the frequency of which the property is available for use by guests. To be considered a trade, the property would have to be available on a frequent and regular basis.

Guest accommodation on a once-off or occasional basis will not be regarded as carrying on sufficient activity to constitute a trade.

Where profits are not chargeable to tax under Case I or Case V they are chargeable under Case IV.

In arriving at the tax assessable profits under Case I, deductions are permitted for expenses incurred wholly and exclusively for the purpose of the trade. For income assessable under Case IV, deduction is only permitted for incidental costs directly associated with the provision of the service – e.g. a proportion of utility costs.

CGT Implications

Where the income is assessable under Case IV or Case V, in the event of a disposal, Principal Private Residence relief may be stillavailable where the property is the main residence of the owner.

VAT Implications

The letting of property is exempt from VAT, unless it relates to short-term guest accommodation.

Short term guest accommodation – including hotel, guesthouse or any holiday accommodation – is liable to VAT at the second reduced rate of 9%.

A business which provides short term accommodation must register for VAT if their income exceeds or is likely to exceed €37,500 per annum. A business can of course elect to register if the income is below the threshold but you should be mindful of clawbacks in doing so at a later date.

For further information in relation to any of the above, please do not hesitate to contact a member of our tax team on +353 1 478 6600

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