What are the tax consequences of Airbnb?
The Airbnb tax consequences are not as straightforward as you might first think.
This year you’ve decided to have a stab at the Airbnb market.
You’ve read a lot about the various alternatives for tax deductions and allowances you can claim, but which are open to you and which can save you the most tax?
Airbnb style property letting has become popular in all areas of the country. Even traditional holiday home landlords are getting in on the act by advertising their properties through Airbnb and similar marketplaces.
You might think that the income tax position for every such landlord would be the same but it’s not.
Airbnb tax consequences
A key factor which determines the tax deductions and allowances your entitled to is whether the letting can be categorised as a business (a furnished holiday let (FHL)), instead of just rental income. To qualify as an FHL you must make it available for letting and actually let it for a minimum number of days each year.
Your property must be available for letting as furnished holiday accommodation for 210 days per year. You must let the property commercially i.e. not usually at rates that would result in financial loss for you, as furnished holiday accommodation for at least 105 days per year.
If the letting is on the cusp of meeting the FHL conditions, it’s worth making the extra effort to ensure that it does. A wider range of deductions is available compared to those for plain rental income. For example, interest and other finance costs are subject to restrictions for plain rental income but not for FHLs. There are also capital gains tax and inheritance tax advantages to FHL status.
FHL status can apply where you let all or part of your home or a separate property.
Rent-a-room relief – Where you let part or all of your home while you’re temporarily absent, rent you receive will be tax exempt if the income you receive is no more than £7500. If you own the property jointly with one or more other persons you’re each entitled to half the exemption i.e. £3750 each. If the total rental exceeds £7500 you can choose to deduct either the actual letting-related costs of the rent-a-room relief amount.
You can choose between using or not using rent-a-room relief from year to year depending on which is more tax efficient, but you’ll need to make an election.
For example, if your expenses exceed your income, you make a loss, for a tax year, opting out of rent-a-room relief will generally be more tax efficient because the loss can be used to reduce the taxable income from other rental properties in the same or later years.
There’s another special tax allowance for rental income specifically for anyone who receives small amounts of rental income called the property allowance.
It works, with minor differences, in a similar way to rent-a-room relief but is only £1000 rather than £7500 and can be claimed only where rent-a-room relief of FHL status doesn’t apply.