If you earn money in the UK, you’re likely going to encounter tax in some form. Whether you’re self-employed or work for a business, there are certain tax obligations you need to be aware of. As an Airbnb host, you’re no exception: though there are certain earning thresholds and tax relief available, you’ll still need to understand the way Airbnb taxes impact you and your property.
Airbnb has some guidance around taxes on its website, but it’s a global company so has very limited UK-specific advice. Instead, we’ve put together a guide for UK hosts that hopefully guides you through the most important considerations you need to be aware of when operating as a host.
Is my Airbnb income taxable?
In general, Airbnb income is taxable. It depends on your activity as a host and what structure you operate under. If the property is your main residence, you’ll be subject to different tax rules than if you let out a different property that you don’t live in. In addition, there’s a clear line in the sand around declaring income earned:
- If you earn less than £1000 per year as a host, you don’t need to declare income.
- If you earn more than £10,000 per year, you need to fill out a self-assessment tax return.
- However, if you live in the home you rent out, you may qualify for the Rent a Room Scheme which grants up to £7,500 of tax-free allowance.
Please note: earnings from Airbnb do not mean you have to register as a sole trader. That’s because earnings are classed as rental income. Which falls under the UK property category that governs rental properties, holiday lets and even agricultural land. That means you are not actually ‘self-employed’ in the eyes of the tax office. This is because rental income is treated differently to traditional business income. Instead, it is counted as personal income.
How much tax do I have to pay?
How much tax you need to pay depends on your situation. It’ll be based on various things such as whether you are renting out your own home, how much you earn and other factors too. Below, we outline the main options.
Airbnb hosting tax with your own residence
If you live in your property, you may qualify for the UK’s ‘rent-a-room’ scheme. This gives you a £7,500 tax-free allowance. You don’t need to own the property to qualify, but you do need to reside in it during your letting period. This means, no jetting off abroad and leaving tenants in. This Airbnb rent a room relief is not counted against profits, however. It is instead counted against gross rental receipts – which means the total receipts before you deduct any expenses.
You’ll automatically become tax-exempt if your rental receipts total less than £7,500 in a tax year. This means you don’t need to declare them in a tax return. If you earn more than £7,500, you’ll fall into normal tax rules. You should remember that under the basic rate tax rules you are allowed to earn £12,570 total income in a year without paying any tax.
How much you pay depends on your earnings. Remember, this is only if you’re hosting from a property that you own and where your earnings have exceeded £12,570.
|Tax thresholds||Income||Tax as % of earnings|
|Personal Allowance||Up to £12,570||0|
|Basic rate taxpayer||£12,571-£50,270||20%|
|Higher rate taxpayer||£50,271-£150,000||40%|
|Additional rate taxpayer||Over £150,000||45%|
Airbnb hosting tax on buy-to-let (not your main residence)
If you do not live in your Airbnb property, you won’t qualify for the rent-a-room allowance. You will therefore pay property tax on your earnings. However, remember that tax is only on profits and because you’ll be renting as a business. Hosts can discount allowable expenses such as repairs, gas, electricity etc.
Most buy-to-let properties fall under the Furnished Holiday Let (FHL) scheme by HMRC, which means meeting the following criteria:
- Your property must be located in the UK or European Economic Area.
- It must be available to rent for at least 210 days per year and be occupied for at least 105 of those.
- No tenant should be renting for longer than 31 days in duration except in rare circumstances.
- It must be rented out to normal holidaymakers and not solely to friends and family.
- The property must be furnished, which is defined as having sufficient furniture for normal occupation.
- It must be commercially let with the intention to make a profit – even if you fail to actually make one.
- All FHLs are taxed as a single FHL business – so you’ll need to keep records accordingly.
FHL properties provide great tax advantages that will help you maximise your Airbnb host earnings. You can claim capital allowance on furniture, equipment and fittings. As an FHL you’ll also be classed as a business, so you’ll be able to claim for allowable expenses such as repairs, utilities etc – further reducing your tax charges.
FHL earnings, unlike traditional buy-to-let properties, are not subject to National Insurance contributions and can also be used to leverage tax-advantaged pension contributions.
Do I have to pay VAT?
If you’re an established host with a range of properties, you may have to register for VAT. This is a 20% tax that is charged on gross earnings before deductions over £85,000. This unfortunately means you need to charge 20% more to guests compared to your non-VAT rate pricing to be able to afford your VAT bill at the end of financial year report.
Council tax and business rates
If your property qualifies for business rates, you don’t have to pay council tax. That means if your property is available to rent for more than 140 days, it will be classed as a self-catering property. This is the same in England and Scotland, but in Wales, it must be available to rent for at least 140 days but only needs to be rented for at least 70 days to fall under business rates.
Capital gains tax
Capital gains tax is another issue to be aware of, which might be incurred when selling your property. If you rent a room in your own home, you’re not subject to it if you’ve only ever had one lodger at a time. If you rent out more than one room, however, you’ll potentially have to pay capital gains tax when selling. Capital gains tax is charged depending on the ‘gains’ made and can be calculated here.
If you’re a landlord selling your property that has been used as an Airbnb, you may be eligible to some capital gains tax relief under ‘entrepreneur’s relief’, which means paying just 10% rather than 28%. Other options include deferring the tax payment until you buy another property through the rollover relief scheme and capital allowances for buying furniture and fittings.
How can I reduce tax on Airbnb income?
With all of this in mind, there are some clear options for those looking to reduce the amount of tax they pay on their Airbnb listing:
- After you exceed the £1000 property income allowance, you can claim for allowable expenses such as gas and electricity, repairs, internet etc.
- If you’re running the property as an FHL, you don’t have to pay national insurance contributions and can claim capital allowances on furniture etc to reduce tax. These are not usually claimable against rental income.
- Entrepreneurs relief provides a 10% capital gains tax rate for FHL owners instead of 28%.
- Airbnb income can count as earnings for pension purchases.
Phew. That’s a lot of ground to cover in a single article – but hopefully, you’ve now got a better understanding of how tax in the UK works in regards to Airbnb tax rules.
Here at Pikl, we’ve designed a purpose-built Airbnb insurance product designed to keep you and your properties safe, secure and covered against all of the issues a short-let host may encounter. Click on the button below to get a quote today.