Do I pay tax on my UK Airbnb income?
In general, money you earn from hosting is income and will be subject to tax. However depending on the amount you earn from hosting, it may or may not need to be declared to HM Revenue & Customs. The tax exemption is automatic if you earn less than the threshold. This means you don’t need to do anything.
You must complete a tax return if you earn more than the threshold. From 6 April 2016, this is £7,500. For the 2015 to 2016 tax year, the threshold was £4,250.
Currently anyone letting a room in their home on a short-term basis using sharing websites, such as Airbnb, can receive up to £7,500 per year in rents without paying income tax.
So what’s the current situation?
If you’re renting out your entire property or a room in your main home for short periods, this is technically taxable over a certain threshold but there are various reliefs available before you need to report to HM Revenue and Customs (HMRC).
1. Rent-a-Room Relief
If you’re renting out a furnished room in your only or main residence, then you can claim ‘rent a room relief’. This relief is still available in cases where you offer services such as serving breakfast or laundry.
You will not be taxed if the gross rents for the year, before deducting expenses, are less than £7,500 for 2016/17 tax year onwards. (Please note that the threshold was £4,250 in 2015/16 and previous tax years).
The annual rent-a-room relief allowance is available per property, so if the property is owned jointly, the rent-a-room allowance is split between the two owners.
The average UK tax rebate is £963
2. Micro Entrepreneur’s – Rental Income – Main home
In 2016, the government announced the introduction of a £1,000 trading income allowance and a £1,000 property income allowance aimed at ‘micro-entrepreneurs’, such as those letting out property or trading via ‘sharing economy’ websites.
It is in effect from 6 April 2017, meaning that if you’re in receipt of income below the new allowance, it will not be subject to income tax. This means you don’t need to report this income to HMRC.
Before 6 April 2017 any rental income received before this date was treated as taxable income irrespective of the amount received.
If your gross income receipts are in excess of these amounts, the recipient can deduct the £1,000 Micro Entrepreneurs Allowance against their gross income to arrive at their taxable rental income figure, as opposed to calculating and deducting the actual expenses they have incurred to arrive at their taxable profit.
What if I rent out more than 1 room?
It’s possible to let out more than one room, but the owner must also reside there as their main residence.
If you exceed the threshold
If the rent-a-room threshold is exceeded or if you choose to pay tax on the rent less expenses under the normal rules for calculating taxable rental profits (described below), then you must declare your rental income on a UK self-assessment tax return.
Just note that if you incur a loss, you may also prefer to account under the normal rules to offset the loss against any rental profits in future years.
The average UK tax rebate is £963
UK Rental Income – Normal rules
If you’re renting out your entire home or separate dwelling/flat then you’re required to declare your property income and expenses on a UK self-assessment tax rebate. The amount of income tax due depends on the profits from your rental business and other sources of taxable UK income.
Under the normal rules, net rental profit or loss is calculated by taking the total rental income and deducting allowable expenditures:
Allowable expenses are expenses incurred ‘wholly and exclusively’ in the course of the rental business including but not necessarily restricted to:
- Letting agent fees
- Legal fees
- Accountancy fees
- Building and contents insurance
- Mortgage interest (in the 2019-20 tax year you could claim 25% of your mortgage tax relief)
- Maintenance and repairs to the property (but not large/capital improvements)
- Utility bills, like gas, water, and electricity
- Rent, ground rent, service charges
- Council Tax
- Services you pay for, like cleaning or gardening
- Other direct costs of letting the property, like phone calls, stationery and advertising
Capital expenses are not deductible for income tax purposes but you should keep full records of any such expenditures, as this will attract Capital Gains Tax (CGT) relief. CGT could be due when a property is disposed of that has been rented out for a period during its ownership.
Furnished Holiday lettings
There are special rules if your property qualifies as a furnished holiday letting:
Remember that to qualify as a furnished holiday letting (FHL), the accommodation must be in the UK or European Economic Area (EEA) and commercially let.
Accommodation can only qualify as FHL if it passes all 3 occupancy conditions:
- The total of all lettings exceeding 31 continuous days should be less than 155 days during the year
- Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year
- You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year
If you let properties that qualify:
- You can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, Entrepreneurs Relief, relief for gifts of business assets, and relief for loans to traders)
- You’re entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures
- The profits counts as earnings for pension purposes
Still confused?
It’s difficult to know exactly how much tax you need to pay and all the expenses and reliefs you’re entitled to claim tax back on - especially if you’ve just started out!
This is why Taxback has a dedicated team to help people who rent out accommodation with their tax return in the UK.
We can help you file your landlord tax return and ensure you claim all reliefs and expenses you are entitled to.
The average UK tax rebate is £963
Thousands of UK landlords and Airbnb owners choose Taxback to help with their taxes every year because:
- Compliance is guaranteed
- Certified tax accountants scrutinize your taxes
- You’ll minimize your tax liability
- We'll maximize any refunds due
- Online updates and complete transparency-you’ll know exactly what’s happening with your taxes!
- Safe and secure-we are ISO certified!
Even if you're not sure if you owe money or you're due any tax back, we can offer you a no-obligation estimate of any possible refunds due! Simply use our tax back calculator now to find out if you are due a tax refund.
Click here to find out more or start your UK self-assessed tax return.
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