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Airbnb – What the tax consequences?

For holidaymakers that want a getaway without shelling out for the full price of a hotel, or maybe simply want a bit more privacy, an AirBnb could be the answer.

Homeowners all over the country are opening up their properties to the letting market via AirBnb, providing holiday accommodation that offers a departure from tradition.

There’s no sign of any slowdown in the AirBnb market, and you may well be considering earning an income by doing the same. If you’ve got a property available, taking advantage of the surge in interest in AirBnb could be a smart move, but have you got all the tax consequences covered?

There are various options available for the tax treatment of AirBnb income, and some are more beneficial than others. Here’s a whistle stop tour of all the available options you could be eligible for, including which one could save you the most in tax.

When letting income isn’t letting income…

You’d be forgiven for thinking that all letting income is treated in the same way by HMRC but this isn’t the case. Depending on the specific circumstances, the taxation of letting income can vary very significantly.

Every landlord will be considered on their individual circumstances and how you categorise your property will make a very big difference to the tax.

A furnished holiday let (FHL), as a general rule, offers the greatest scope for tax deductions and allowances. However, you can’t qualify as an FHL just because you let out your property for holidays on a furnished basis – if only if were that easy!

If you don’t meet the strict criteria for a FHL, it will be treated as rental income instead which doesn’t enjoy the same tax breaks.

Understanding FHL criteria

You don’t need to rent out your entire property for it to qualify as a FHL; this status can apply to accommodation which is either fully or partially let. You don’t need to make a profit from the income as long as you fulfil the other criteria.

To qualify as a FHL your property must:

  • Be available to rent for a minimum of 210 days in the tax year
  • Let to the public for a minimum of 105 days in the tax year
  • Not have lettings of more than 31 days that when combined exceed 155 days in the tax year

Note: any periods where family and friends rent the property at a reduced rate are excluded from the 105 days.

If you have more than one property you can add them together collectively and average the figures up. This may help if one property doesn’t meet the threshold, but all of the others exceed it.

If you qualify as a FHL, you can claim a number of different types of tax relief. These could include:

  • Capital allowances for property furniture and fittings
  • Rollover Relief when you sell one AirBnb and buy another
  • Entrepreneur’s Relief
  • Capital Gains Tax Relief

There are other tax advantages too, such as on Inheritance Tax and relief on gifts, loans and business assets.

The income you receive from your FHL will also be treated as income for the purposes of pension entitlement, another useful element.

Rent-a-room relief

Of course, while FHL has some great tax breaks, not everyone will qualify. So, what can you claim if your property doesn’t count as an FHL?

Rent-a-room relief could be the answer for many as it’s a versatile scheme that many will be eligible for. The following could count under the rules:

  • Furnished rooms which are let out to a lodger
  • A guest house
  • A full-house let (providing it’s not exclusive)
  • Bed and breakfast businesses
  • Rooms which include services such as cleaning and meals

To qualify for rent-a-room relief, the following must apply:

  • The room must be furnished
  • It must be your main UK abode
  • You must be resident in the UK
  • The let cannot be for business purposes, such as an office

If all of the above applies, you could be eligible for the rent-a-room relief. This allows you to earn £7500 per annum from letting tax-free (figures correct at time of writing). If two people want to claim this relief, the sum of £7500 can be split in half.

You must pay tax on your profit above £7500, but it’s possible to make allowances for some expenses and capital first. This reduces the tax payable further.

There were recent proposals to change the rules around rent-a-room relief with effect from April 2019. This would effectively have meant that only residences where the landlord slept at could be counted.

However, a U-turn has meant that there’s been no change to the existing rules and even if you’re absent, providing you’re in the UK and it’s still your main residence, you can claim the relief. The important distinction here is that your tenant must not have whole and exclusive use to the entire property. You must retain access to the property as your main residence, even if you are absent.

Low rent exceptions

Property allowance is another form of tax relief which is capped at a much lower level. This allows homeowners to receive income of up to £1000 per annum without being liable to tax. It works in roughly the same way as rent-a-room tax relief, but with the limit set at £1000 rather than £7500.

The advantage it offers is that individuals who don’t qualify for either FHL or rent-a-room could still claim this low-rent property allowance.

Get some expert insight

If you’ve got a spare property, or space in your own home, AirBnb income is an excellent way to monetise the space. However, if the ins and out of taxation seem too complex to wrap your head around, why not let us give you a hand? Here at Partner Accountancy we like to help you make the very best of your circumstances, and provide friendly and simple advice that will make life much easier. Get in touch with us today to find out how we could help.