Many homeowners, property investors and entrepreneurs are exploring innovative ways to make the most of their spaces, like using Airbnb. From earning additional income to connecting with people all over the world, becoming an Airbnb host offers a variety of benefits.
There’s one important thing to think about, though, and that’s the specific tax rules and regulations around renting out your home or property on Airbnb.
If you rent out a property on Airbnb, which is owned in your name, then you may be liable to pay income tax. Airbnb works like a trading business, so there are more tax benefits than standard buy-to-let properties. You can offset mortgage interest, and it’s more favourable for Capital Gains Tax.
In this handy guide, we are helping Airbnb hosts, and people considering Airbnb as a source of additional income, work out their tax liability. Keep reading to learn more about tax on Airbnb income, or contact our tax experts for personalised advice about your Airbnb earnings.
What is Airbnb hosting?
Airbnb is a modern hosting platform that allows you to rent out your space to travellers and holidaymakers for short-term stays. It is essentially a mini B&B that you run yourself. Guests can find your place on the Airbnb app or website and pay you directly.
So, whether you’re a landlord or a homeowner, you can rent out your space to people in need of a place to stay, be it a house, a spare room or even a unique cabin in a remote location.
What is the difference between Furnished Holiday Lets and Airbnb income?
While they may offer many similar services to the guests, there are some key differences between Furnished Holiday Lets and Airbnb accommodations, as well as the income they generate.
A Furnished Holiday Let is a dedicated business that provides short-term accommodation to holidaymakers and travellers. It is usually done with the intention to make a profitable income and works like a rental business.
An Airbnb accommodation, on the other hand, is a more diverse service aimed at providing various types of short-term rentals for multiple reasons. It can be set up as a business, making it more similar to FHLs, but it can also be used to make additional income on the side in a more casual way.
Is being an Airbnb host the same as being a landlord of a buy-to-let property?
While you are offering a similar service, being an Airbnb host isn’t quite the same as being a landlord of a buy-to-let property.
The reason for this is that Airbnb hosts typically rent out their accommodation for short-term stays to various guests, whereas buy-to-let landlords will rent their property to one person or group for a long-term tenancy of usually six months or more.
Can you rent a room within your own home?
If you own your property and use it as your primary residence, you can usually rent out one of the rooms on Airbnb. Doing so is a quick and easy way to make extra income, which can be especially beneficial for savvy entrepreneurs looking to diversify their earnings.
What are the tax implications of Airbnb hosting?
If you’re earning money through Airbnb, then it will be considered taxable income. This means that you may be liable to pay tax on some or all of the earnings. The amount of tax you’ll be expected to pay will vary depending on how much you’re earning, the type of accommodation you rent out and whether you also live there.
It doesn’t have to be complicated, though! You can also offset some of the expenses involved in running your Airbnb accommodation and may even benefit from certain tax reliefs. At Archimedia Accounts, we are property accounting experts specialising in tax. If you are unsure how much tax you need to pay as an Airbnb host, then get in touch today to find out how we can help.
When is an Airbnb host subject to income tax?
Everyone has what is known as a personal allowance, which is the amount of tax-free earnings you can make without needing to notify HMRC.
In the UK, the personal allowance threshold is £12,570. Anything you earn after this point is subject to tax. This stands for Airbnb hosts, too, which means you must start paying tax as soon as your income exceeds the threshold.
Do you have to pay VAT on Airbnb income?
The rental income from residential property is exempt from VAT in the UK. However, it is crucial to note that Airbnb is treated for tax purposes as trading income, like a hotel, rather than a buy-to-let residential letting.
There is no legal requirement to register for VAT unless the gross income from your Airbnb services exceeds the VAT registration threshold of £85,000.
How does Capital Gains Tax work with Airbnb property?
If you rent out accommodation on Airbnb and come to sell the property, you may be subject to pay Capital Gains Tax on all or part of the profit.
As an Airbnb host, your Capital Gains Tax liability will depend on how you have used the property before deciding to sell it. Is it your primary place of residence? Is it a second property you use solely for Airbnb? Or is your property classed as a Furnished Holiday Let?
Is it possible to defer Capital Gains Tax when buying and selling Airbnb properties?
You may be able to defer Capital Gains Tax if you are selling one Airbnb property and purchasing another. This is known as the Rollover Relief, which is available to Furnished Holiday Lets.
It essentially saves you from paying CGT in the short term, although you will eventually have to pay it if you sell the next property.
Are there tax advantages to Airbnb hosting?
If you’re looking to make more significant tax savings through your Airbnb business, then you’ll likely want to know about the different tax advantages available.
The good news is that, while you will have specific tax obligations to deal with, there are several advantages to Airbnb hosting. For instance, you can often deduct certain expenses that go towards running your Airbnb, and you can even make the most of specific tax reliefs.
What tax reliefs are available for Airbnb hosts?
Here are some of the most common reliefs available to Airbnb hosts:
Expenses and allowances
You may be able to deduct various expenses involved in running your Airbnb, such as maintenance, utilities, mortgage interest and even certain capital allowances like furniture and equipment for the property.
Capital Gains Tax Relief
If your Airbnb property qualifies as a Furnished Holiday Let and is not your main home, you may benefit from certain CGT reliefs when you come to sell it.
This includes the previously mentioned Rollover Relief and capital allowances. It also includes Entrepreneurs’ Relief, which reduces your CGT liability to 10% if you sell the property as a business asset.
Rent a Room Scheme
When renting a room in your house, you can also benefit from the Rent a Room Scheme. This scheme allows you to earn up to £7,500 per year as a tax-free allowance.
The Rent a Room allowance is available for various Airbnb landlords as long as it is a furnished accommodation within your primary residence and is not used for business purposes.
If two people rent out a room within their residence, they will split the £7,500 Rent a Room allowance, so they have £3,750 each. To receive this tax-free allowance, you cannot claim expenses on income over £7,500.
How does HMRC conduct tax investigations on Airbnb income?
HMRC are finding new and innovative ways to ensure people across the country meet their tax obligations. With online shopping platforms like eBay, Etsy and Airbnb on the rise, HMRC is cracking down on the entrepreneurs looking to make income through these modern methods.
They can now use data tracking and matching software to keep track of any commercial activity across these sites. It enables them to compare the data of these sites with their own data of submitted declarations (or lack thereof). As a result, HMRC can now identify undeclared Airbnb income and contact the hosts to investigate.
So, if you’re renting out your space on Airbnb for extra money or as your main source of income, it’s important to stay on top of your earnings and taxes. Keeping a good track record of your income and expenses and completing a Self-Assessment tax return each quarter will help you avoid unwanted penalties.
Contact Archimedia Accounts for specialist property tax advice
Are you considering Airbnb as your latest entrepreneurial venture? Or perhaps you already have a successful Airbnb hosting service and need an accountant to support you with the tax side of things. Well, whatever your short-term let property needs are, the team at Archimedia Acccounts are always happy to help.
Our extensive tax and accounting experience, combined with our success in growing an impressive property portfolio, means we are best placed to help you make your Airbnb business a thriving success.
We’ll guide you through the stages of setting up and running an Airbnb hosting service if you’ve never done it before and ensure you pay the right amount of tax at the right time. We’ll utilise any allowable expenses and tax reliefs available, such as the Rent a Room allowance, and, ultimately, we’ll ensure your overall earnings are as tax-efficient as possible.
Contact us today for tailored support with your Airbnb earnings.