After Airbnb was forced to pay more tax, they agreed with HMRC to share data relating to their landlords’ incomes from their site. What could this mean for you?!
As The Times reported recently, Airbnb has struck a deal to share the amounts of income that their users have received from as far back as 2017. This means HMRC will now be able to investigate Airbnb landlords who have not declared their Airbnb income and is a big warning to any current Airbnb hosts. Get Tax Help for Airbnb Hosts with the help of our guide.
Do I Need to Pay Tax on Airbnb Income?
The answer to this question is not a straight yes or no.
If you need to pay tax on your Airbnb income will depend on numerous factors, including the property you rent out on Airbnb.
Everyone in the UK in the current tax year has a tax-free allowance of £12,500, which means if you earn less than this per year (from all income added together) then you won’t need to pay any tax on any Airbnb income. However, you will still need to declare it through self-assessment.
Any income above this threshold, whether from a job or from an Airbnb rental will usually be taxed at your income tax rate (20% or 40%).
But there are situations when you won’t have to pay tax on your Airbnb income even when you earn more than £12,500 from other income.
And it all happens through a scheme called Rent a Room Relief!
What Is Rent a Room Relief?
Rent a Room Relief is a separate tax-free allowance given to people who rent a single room (furnished or unfurnished) in the property that they live in. The relief provides these landlords with a further £7,500 tax-free allowance from this rental income and it will apply to some Airbnb hosts who are not renting second homes/apartment, but only a room in their main residence.
For example, you could earn £20,000 per year from a job and pay 20% tax on the amount above your tax-free threshold (in this case £7,500), which would be a £1,500 tax bill. And then the Airbnb landlord renting a room in their own home could make up to £7,500 income on Airbnb and not have to pay any tax on it.
It is common for couples to rent a room in their home on Airbnb together. If you do rent a room on Airbnb from a joint main residence then the Rent a Room allowance is split into £3,750 each.
In any other situation, Airbnb income will not be given Rent a Room relief and tax will be owed on the Airbnb income from the first £1 you make renting it out.
But that’s not all you need to know. Read on!
Minimise Tax Liability on Airbnb Second Homes
If you rent on Airbnb but do not rent a room in your main home, then there are still things that can be done to legally minimise your tax liability. Airbnb properties of this nature generally qualify as a furnished holiday letting.
This enables the landlord to claim some forms of Capital Gains Tax (CGT) relief. For example, you may be able to claim:
- Capital allowances for the property fittings and furnishings
- Entrepreneur’s Relief, which would only make you pay 10% CGT instead of 28% if the property is sold
- Rollover Relief, which is a way to defer CGT if you sell to buy another residence for holiday lettings and Airbnb income
- Wear and tear relief (also available to Rent a Room Relief landlords)
HMRC Tighten Rent a Room Loopholes
HMRC has recently made the Rent a Room relief only available if you remain in the property while a room is rented out.
Some people were using the scheme to save on tax and only renting the property at certain periods of the year. For example, those residing near Wimbledon were renting it out during the tennis tournament and leaving for a vacation. This sort of abuse of the rules is no longer allowed.
Tax Help for Airbnb Hosts from Yorkshire Accountancy
Our team of tax specialists have lots of clients with Airbnb businesses. If you are worried about Airbnb’s recent data sharing with HMRC or want further guidance, reach out to us soon!