Airbnb and Accountants Tax Guide: Navigating the UK Tax Landscape

Airbnb and Accountants Tax Guide: Navigating the UK Tax Landscape 2024

The rise of short-term rental platforms like Airbnb and has created lucrative opportunities for property owners in the UK. However, this potential for extra income comes with the responsibility of understanding and managing the associated tax obligations. This comprehensive guide from GM Professional Accountants will help you navigate the complexities of renting out your property and ensure you remain compliant with HMRC regulations.

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Can I Rent My Property as a Holiday Let?

Whether you can rent out your property on platforms like Airbnb and largely depends on your mortgage lender’s terms and conditions. Mortgage providers often have specific rules regarding short-term lets, and violating these terms can lead to severe consequences. It’s crucial to communicate your plans with your lender to avoid potential penalties.

For those renting council or housing association properties, subletting may be restricted. Always seek permission from your landlord or freeholder before listing your property.

Is Airbnb or Considered Self-Employment?

One common misconception is that hosts on Airbnb and are classified as self-employed. However, the income generated from renting out property is considered rental income, not self-employment income. This distinction is important because it affects how you report and pay taxes on your earnings.

Do I Have to Pay Tax on Airbnb or Income?

If your total income from property or self-employment exceeds £1,000 in a tax year, you must declare it to HMRC. The tax-free trading allowance permits you to earn up to £1,000 without reporting it, but any amount above this must be included in your Self Assessment.

Trading Allowance and Rental Income

The trading allowance allows you to earn up to £1,000 tax-free from property or self-employment income each year. If you have both types of income, you receive a £1,000 allowance for each. For earnings above this threshold, you must register with HMRC and file a Self Assessment tax return by 5th October following the end of the tax year.

Will HMRC Know About My Rental Income?

Yes, HMRC is likely to be aware of your Airbnb and earnings. Digital platforms like these are required to report your income to HMRC. You will receive a copy of this information, so it is essential to ensure its accuracy.

How to Pay Tax on Rental Income

To pay tax on your Airbnb or income, register for Self Assessment and submit your tax return, detailing all earnings and expenses. For property owned through a limited company, different rules and deadlines apply, so be sure to verify the specific requirements for your situation.

Tax Rates and Allowances

For the 2024/25 tax year, the Personal Tax Allowance is £12,570. Any earnings above this amount are taxable. You can reduce your taxable income by claiming allowable expenses or the £1,000 trading allowance, whichever is more beneficial.

The Rent a Room Scheme

If you rent out a room in your main residence, the Rent a Room Scheme allows you to earn up to £7,500 tax-free. This scheme is separate from the trading allowance and cannot be claimed simultaneously for the same income.

Conditions for the Rent a Room Scheme:

  • The room must be furnished.
  • The accommodation must be part of your main home when let.

Restrictions on the Scheme:

  • The room cannot be used as an office or for business by the lodger.
  • The scheme cannot be used if the owner is living abroad while the room is let out.

Note: Even if you take in multiple tenants, the £7,500 allowance applies per property, not per tenant. If the property is jointly owned, the allowance is reduced to £3,750 per owner. If you choose the scheme, you cannot claim other expenses incurred for generating rental income. If your gross rental receipts are below £7,500 in a tax year, tax exemption is automatically applied, and you are not required to declare this income in your tax return.

Case Study:
Mark, earning £20,000 from his job, rents out a room in his house via Airbnb, making an additional £7,500. Through the Rent a Room Scheme, this income is tax-free, significantly reducing his tax liability.

Section 24 and Furnished Holiday Lets

Section 24 restricts the deduction of mortgage interest from rental income for tax purposes. However, this does not apply to Furnished Holiday Lets (FHLs). Properties qualifying as FHLs must meet specific criteria, such as being available for letting at least 210 days per year and rented for at least 105 days.

Capital Gains Tax and Airbnb/

Furnished Holiday Lets benefit from favorable Capital Gains Tax (CGT) rules, including a 10% CGT rate under Business Asset Disposal Relief and access to capital allowances. Be sure to explore these options to maximize your tax efficiency.

VAT Considerations

If your rental income exceeds £90,000 in a 12-month period, VAT registration is mandatory. Decide whether to charge VAT directly to your guests or absorb it within your rental rates to remain competitive.

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