Popular sites like Airbnb are inspiring some homeowners to generate income by letting out part or all of their home. But what are the tax consequences of this?
The tax consequences all depend on how much you make, how much of your home you let out and how often it is made available.
LETTING OUT ALL OR PART OF YOUR HOME
The amount of tax you pay will depend on what profits you’ve made from letting plus, any other income you have. Be aware that Airbnb and other online providers report letting income details to HMRC.
Rent-a-room relief (currently £7,500 per year) can be available if letting part of your main residence. If the gross receipts don’t exceed that figure there is no income tax liability on your profit. If your receipts exceed £7,500, you can choose either to pay tax on the excess, or on your actual profit after qualifying attributable expenses.
In calculating your profit, you can deduct certain allowable expenses – such as a proportion of building and contents insurance, council tax (or business rates), and maintenance/repairs to the property. Seek specialist advice for the complete list. A tax deduction is also given for loan interest and other finance costs, but restrictions and conditions apply.
The relief applies to your property, not to you as an individual. So if you co-own your home with another, the £7,500 allowance has to be split between you both.
Also, if you have any other letting income of less than £1,000 in a tax year (for example letting out a car parking space), this is exempt from tax but is not in addition to the £7,500 allowance.
Your lettings are likely to fall within the VAT definition of quasi-hotel or holiday letting. Most people who act as hosts via Airbnb however are not VAT registered, as their turnover is less than the VAT registration threshold (currently £85,000 a year).
If you are already VAT-registered personally, or the rents exceed the VAT registration limit, you will have to account for VAT at 20% on those rents. You are, however, able to reclaim the VAT on associated costs.
Note, if you are VAT registered in your own name for a different business activity (for example, a consultant), but also earn income via Airbnb, your Airbnb income will need to be treated as part of your VAT registration and returns.
MAKING TAX DIGITAL
The Government’s Making Tax Digital (MTD) initiative involves maintaining digital records and using MTD-compliant software to provide information to HMRC.
Every VAT-registered business must now be MTD compliant even if their income is below the VAT registration threshold and they are VAT registered on a voluntary basis. The only exceptions are for those that are unable to use computers ie on the grounds of religion, disability etc.
MTD is then intended to apply to income tax from April 2026. This will affect landlords with an annual rental turnover of over £50,000, as well as the self-employed. Those with an income of between £30,000 and up to £50,000 will be mandated from April 2027.
Business rates may be payable on your property, although there are many reliefs. Generally, liability here depends on the property being let for at least 105 days per year, and being available for letting for at least 210 days per year.
BE CAREFUL IF YOU’RE LOOKING TO SELL THE PROPERTY
If you are looking to sell the property in the future, do get specialist advice regarding the effect of any letting you’ve done or plan to do. A gain on disposal of your main residence is generally exempt from Capital Gains Tax (CGT). But any period of letting activity may restrict the exemption. Do seek professional advice to ensure you don’t end up with a hefty CGT bill.
Finally, do check the terms of your mortgage, property insurance and lease, if there is one.
For more information on letting furnished holiday accommodation see here on the gov.uk website or contact one of our specialists shown on this page.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.
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