The travel industry has faced turmoil this summer, with baggage claims flooding airports, strikes, and miles-long lines at the port of Dover with people making a beeline for the Eurotunnel. Is it time to reacquaint ourselves with a domestic getaway? With more people potentially scrolling through Airbnb for a British holiday, you may be wondering whether your property could be a place to escape for someone in need of a break.
The Airbnb market in the UK is booming, and if you’re looking to tap into this market and earn an income through Airbnb, it’s important that you understand the tax implications. Find out everything you need to know.
Tim Walford-Fitzgerald, Private Client Partner at HW Fisher explains:
“Airbnb earnings are not exempt from tax, and they will be added to your total taxable income. Unlike salaries that are reported by an employer, you will need to notify HMRC that you have untaxed income to report and then of the taxable profit each year.”
Remember, you will need to submit a tax return if you are earning rental income – the deadline for filing online is typically 31st January each year, however you should always confirm with HMRC, and you do have the option to submit a paper tax return however the deadline will be earlier. We have provided a useful guide to help you avoid late penalties when filing your tax returns.
Make sure your taxes don’t go through the roof: benefit from Rent-a-Room Relief
You may be eligible for a separate tax-free allowance from your main income if you rent just a room through Airbnb. You will be eligible for Rent a Room tax relief if you rent a room from a property which is your main residence. If this is the case, you don’t have to pay tax on the first £7,500 you earn from this rental every tax year. If you’re letting jointly (for example, with a partner or friend), then it’s £3,750 for each of you. If your rents are more than this, then you have a choice to deduct either the allowance or your real costs to work out the taxable profit.
Time to address expenses
For other rental properties you normally have a choice of claiming actual expenses or a flat rate deduction of £1,000 a year, per joint owner. Expense rules can be complex, particularly taking deductions for renovations and mortgage interest. A ‘like for like’ replacement of an item is normally allowable, but the rules treat some things differently, such as replacing a free-standing appliance with a built-in version. An easy mistake to make. HMRC guidance is available on-line in the Property Income Manual.
Tim adds: “Watch out for providing too many extra services. Providing changes of linen, cleaning for longer stays and offering meals could tip you over from renting a property to carrying on a trade, meaning National Insurance Contributions (NIC) may be chargeable as well as income tax.”
For more information or to discuss your personal circumstances, please get in touch.