Airbnb / Short-stay holiday let tax: THE DEFINITIVE GUIDE

Whether you run a B&B or guest house and wish to know how the burden your competition faces, or you rent out any of your property as a furnished holiday let, it is useful to be aware of the parameters of so called Airbnb tax.

For many Airbnb UK hosts, no income tax may have been paid on that income as a result of a relief targeted at lodgers called rent-a-room relief. Rent-a-room relief allows for gross income of up to £7,500 a year to be received on a property that is the individual’s main home and the legislation does not currently include any requirements for the landlord to be living in the home at the time.

However, from April last year rent-a-room relief has only been available where the host also lives in the property at some point during the rental period. That’s an added extra which many guests want to avoid if they are looking to rent the entire property.

The restriction on rent-a-room relief has been described by some as the ‘Airbnb tax’, but for many the platform still offers its hosts the opportunity to benefit from valuable tax reliefs and could drive more entrepreneurial behaviour as they seek to operate more like a business.

 

Legal obligations

The reality is that people renting out rooms via Airbnb are deemed by the taxman to be running a business. Therefore, just like any business, they are legally required to pay tax on the money they earn.

This means that a host who earns a small amount each month from renting out a room, provided that amount over the course of the financial year does not exceed the personal allowance of £12,500, will not be required to pay tax on Airbnb earnings. If, however, the Airbnb revenue exceeds that amount, there is a responsibility to declare that money and pay the relevant taxes.

 

How much tax must hosts pay?

There’s a difference between renting out a room in a property owner’s main residence and renting out a room in an investment property.

If someone is letting a room in their own home, there are several tax-free allowances and advantages that can be gained in relation to paying tax.

Hosts running an Airbnb business involving an investment property or a property you do not live at full-time will be taxed as a business owner.

 

Business rates on furnished holiday lets in the UK

Airbnb hosts who own properties in the United Kingdom may be subject to business rates.

 

Who pays council tax on a holiday let?

When you are renting out your holiday home or investment property on Airbnb and it’s available to let for less than 140 days per year, you will need to pay council tax – not business rates.

 

Can I offset my letting losses against other income?

Unfortunately, the UK government no longer allows Airbnb hosts to offset their furnished holiday letting losses against other income. You can only offset your Airbnb income losses against future profits for the same property.

 

Don’t forget about VAT

Remember to consider the VAT threshold of £85,000. If your total Airbnb rental income exceeds this threshold, you will need to register for VAT.

 

The advantages of paying Airbnb tax

If your property qualifies as a Furnished Holiday Let you can benefit from the following:

Profits can be counted as earnings for pension purposes

Allowances can be claimed for fixtures, furniture and certain types of equipment in your home

Capital Gains Tax relief programs such as the Entrepreneurs’ Relief or Business Asset Rollover Relief may apply.

 

Does my property qualify as a Furnished Holiday Let?

It is important to define the term ‘Furnished Holiday Let’ so that you know where you stand. To qualify, your Airbnb must:

Be available for letting on Airbnb for at least 210 days of the year

Have to be let out for at least 105 days a year

Have a sufficient amount of furniture for everyday use

Exist in the United Kingdom or European Economic Area (EEA)

Be rented out as a commercial let to the public for at least 105 days per year.

 

Capital Gains Relief Tax

If your property qualifies as a Furnished Holiday Let and if it’s not your main residence, you are entitled to capital gains tax relief. This may include:

A 10% capital gains tax rate instead of 28% when you sell your property under the Entrepreneurs’ Relief scheme.

The ability to defer capital gains tax on the sale of your initial property when you sell one Airbnb residence and buy another under the Rollover Relief scheme.

The ability to avoid paying capital gains tax under the Gift Hold-Over Relief scheme which involves owners giving away their business assets or selling them for less than they are worth in order to help the buyer.

Access to capital allowances for property furniture and fittings.

 

What is the 90 Day Rule?

The 90 Day Rule which was formerly called the Airbnb’s 90-Day Limit in London, is currently effective only in the city of Greater London. The 90 Day Rule is simply a rule that applies to property owners setting default limits on their entire space. Such property must be registered on Airbnb listings before the rule can be effective. Property owners are required by Airbnb to put a limit of 90 days of occupied nights per calendar year. It was introduced by Airbnb in January 2017, in the city of Greater London.

Airbnb has put a limit on the number of nights people (for lets) can occupy your apartment per year to 90. In other words, a property on Airbnb listing can’t be let out for more than 90 days of occupied nights per calendar year. Once the 90-day limit has been reached, bookings for your property will be automatically closed by Airbnb until the end of the year.

The 90 Day Rule does not apply to you if you are able to confirm that you have the necessary permit to rent your space for a longer period i.e. more than 90 Days on a consecutive let. However, anyone that does not satisfy the above condition and thereby go against the Airbnb rule may be penalized and pay a fee of £20,000.

The Airbnb’s 90 Day Rule was put into practice with the focus of legalizing short lets in London. To its effect, property owners were required to apply for planning permission so as to rent out their homes for vacation lets (a short time lets).

Max can be contacted at www.zigzagca.co.

More from Dominic Johnson

PIVOTING AND REPURPOSING A BUSINESS. By Matt Bryant, Zig Zag Chartered Accountants

Overview Covid-19 has had a big impact on many SMEs in the...
Read More