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How does tax work for Airbnb owners?

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Renting out your spare room – or even a dedicated holiday home – to guests like these is a great way to make some extra money, and to dip your toe in the waters of property investment.

But before you dive headfirst into the world of short-term rental micro-entrepreneurship, be sure to weigh the risks with the benefits. How much tax will you be paying to operate an Airbnb property in the UK?

‘Staycations’ are on the rise in the UK; with more and more of us turning to services like Airbnb and Vrbo for more flexible, affordable holiday accommodation.

Our definitive guide can give you all the answers…

Airbnb tax rules for hosts: the basics

  • Depending on your circumstances, you may need to pay income tax, VAT and either council tax or business rates on your rental income; as well as capital gains tax on the eventual sale of the property.
  • The amount you’ll pay depends on the type of rental you’re offering, how often you’re renting it out, and how much rental income you’re making each year.
  • You might also be able to claim various expenses and tax reliefs to lower your tax bill.

We’ll cover each of the rules in more detail below; but please note that this article may not be up to date with future tax changes and does not constitute tax advice.

It’s always best to speak with a tax specialist; such as GNS Associates’ team of business accountants in London. Call 0208 090 2604 or email info@gnsassociates.co.uk to discuss your Airbnb business today.

Does Airbnb automatically deduct taxes from my rental income?

No. It’s up to hosts to complete their own self assessments and pay the tax they owe to HMRC.

Do I need to declare Airbnb income?

Not necessarily!

Everyone gets an annual tax-free property allowance of £1,000, which includes Airbnb hosting. 

If your rental income (plus any other property investment income) stays within the £1,000 limit, you won’t have to declare this income to HMRC and you won’t pay any tax on it.

Alternatively, the government’s Rent-a-Room Scheme enables you to rent out a room (or several rooms) in your own home and earn up to £7,500 in rental income without incurring tax.

The scheme is compatible with Airbnb hosts, and there’s no need to register. As long as the room is furnished and you’re living at the property, you’ll automatically qualify.

Keep in mind, though, that the scheme strictly applies to hosts renting out a portion of the home they live in. If you’re renting out a separate property, you won’t have access to this £7,500 allowance.

And if you share your property with some (e.g. your spouse) and you both receive the income from the Airbnb rentals, this £7,500 threshold is split between the two of you. You’ll each only be able to earn £3,750 before tax kicks in.

What if I’m not a homeowner? Can I still use the Rent-a-Room Scheme for a property I’m renting?

Yes. There’s no stipulation that you have to own the property you’re renting out; you just have to be living at the property.

Of course, many landlords will refuse to allow any kind of subletting, so be sure to check the terms of your lease before you start renting out a room in your flat to guests!

What if my Airbnb income is above these thresholds?

If your rental income from your separate Airbnb property is above £1,000, or your rental income from a single room under the Rent-a-Room Scheme is above £7,500, you’ll need to fill in a self assessment tax return.

(Don’t forget to register for self assessment, if you haven’t already done so.)

You have two options for calculating the ‘profits’ which will be taxed:

  • You can take your Airbnb income and subtract expenses (in which case you can’t use your tax-free property allowance or Rent-a-Room allowance to claim partial relief), or 
  • You can subtract your personal allowance or Rent-a-Room allowance from your total Airbnb income (in which case you can’t claim expenses).

(We’ll talk more about expenses in a moment…)

Whatever’s left from either of these methods will be subject to tax along with any other income you’ve earned for the year. Your personal tax-free allowance still applies here as well; so if you’ve earned £12,570 or less in total across the year, you won’t pay any tax.

How much tax will I pay on my Airbnb rental income?

Take a look at our guide to income tax and corporation tax for more information on income tax rates.

Do I need to pay VAT on my Airbnb rental income?

Not unless you’ve earned more than £85,000 over the previous 12 months. 

If you have, you’ll need to register for VAT. This means charging 20% VAT to your guests and completing a regular VAT return.

What about expenses? What expenses can I claim for my Airbnb property?

For the purposes of tax, being an Airbnb host is essentially treated as a rental business; which means you can deduct certain allowable expenses from your taxable income.

Allowable expenses include:

  • Agents fees (including accountancy fees, legal fees and Airbnb’s service fees)
  • Repair costs
  • Insurance costs
  • Utility bills
  • Council tax

Any expenses claimed must be ‘wholly and exclusively’ incurred from running your rental property. Remember, you cannot claim property allowance or Rent-a-Room allowance if you’re claiming expenses (and vice-versa).

Note that you can no longer claim mortgage interest relief, unless your property qualifies as a furnished holiday letting (or ‘FHL’).

What is a furnished holiday letting?

A furnished holiday letting is a particular category of property which describes some kinds of holiday accommodation.

As long as your property fulfills the strict criteria for FHLs, it can qualify as a furnished holiday letting; which means you’ll be able to claim 100% mortgage interest relief and capital allowances for things like furniture, fittings and appliances.

In other words, if you’re running your Airbnb property as holiday accommodation, you might be able to reduce your tax bill!

Do I need to pay council tax or business rates on my Airbnb property?

  • For properties in England, if your property is available to rent for 140 days or more throughout the year, you’ll pay business rates; if not, you’ll pay council tax.
  • For properties in Scotland and Wales, your property must also be rented out for at least 70 days a year to qualify for business rates.

Different areas will have different rules on which types of properties qualify for business rates, so be sure to check with your local council.

You might also be able to get relief on some – or all – of your business rates bill. It depends on the ‘rateable value’ of your property; if it’s under £15,000, you won’t pay any business rates.

Keep in mind, though, that you won’t be entitled to council services if you’re on business rates; which means you might need to cover the cost of waste removal and other utilities yourself.

What if I operate my Airbnb property under a limited company?

In this case, you’ll pay corporation tax on your Airbnb profits instead of income tax, as well as tax on any extracted profits. 

More information on corporation tax rates can be found in our guide to income tax and corporation tax.

What does your Airbnb tax bill look like? Speak to GNS Associates’ team of specialist tax experts and business accountants in London; we’ll help you build a picture of your exact tax liabilities, costs and relief opportunities.

Call 0208 090 2604 or email info@gnsassociates.co.uk to discuss your Airbnb business today.

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