Airbnb has become a huge and successful platform to find quick accommodation. It has revolutionized both the rental and hotel industries. However, along with an amazing opportunity to earn extra income by short-term and long-term letting, hosts in the UK might face complexities of tax regulations regarding potential issues with HMRC. In this blog, we will provide a comprehensive overview of the tax rules for Airbnb hosts engaging in short-term and long-term letting in the UK.
Can property be let as a holiday let?
If you are planning to rent out a mortgaged property, then you’ll need to check the lender terms. Some lenders are very specific about the contract terms and conditions and breaking them can have harsh consequences.
Short-term letting (for less than 28 days) might not be a problem but for long term (for more than 28 days) letting you may need to switch mortgages. That’s why it is important to discuss these things with your lender early on.
Is Airbnb classed as being self-employed?
If the whole property (or part of it) is rented out, the resultant income will be classified as rental income. It’s a little bit confusing here as Airbnb hosts are making money as small business or sole traders and looks like they are self-employed. Actually, they are not, and different tax rules apply here.
Is Airbnb income taxable?
You must declare any property or self-employment income if you receive a total income of more than
£1000 from it in a tax year. This is thanks to the tax-free trading allowance.
What is tax free trading allowance?
It means if you can earn up to £1000 as property income or as a sole trader in a tax year, then you won’t
have to declare this to HMRC. You will get a £1000 allowance each if both incomes are less than £1000.
But if you earn more than £1000, then you will need to register with HMRC and declare your rental income from Airbnb.
How to pay tax on Airbnb income?
To pay taxes on your Airbnb income, you must register for Self-Assessment by October 5th following the end of the tax year you need to report. Once registered, you’ll submit tax returns and provide details of all your earnings, including income already taxed, such as wages from an employer. This process is necessary for declaring your income as a sole trader.
How much tax will be paid on earnings from Airbnb?
You’ll pay tax on your Airbnb earnings above the Personal Tax Allowance (£12,570 for the 2023/24 tax year). However, there are other allowances and tax reliefs available to potentially reduce your tax bill. The tax you owe is calculated based on your profits after deducting any allowances or expenses, not your total income.
Claiming the trading allowance on your tax return:
Remember the £1,000 trading allowance we discussed earlier? You can still claim it even after registering with HMRC. On your tax return, you can choose between claiming the trading allowance or your expenses.
If your Airbnb property expenses are less than £1,000, it’s best to claim the allowance to reduce your tax bill. But if your expenses exceed the allowance, claim those instead! Choose what benefits you the most.