If you have listed your home on AirBnB what are your tax obligations?
Property allowance
From April 2017 HM Revenue & Customs (HMRC) introduced a property allowance of £1,000. This enables a taxpayer to opt to either use the property allowance OR to claim the actual expenses of letting in determining the letting profits liable to tax.
- If your income from letting is below £1,000 in a tax year, you have no reporting obligation to HMRC as the allowance will cover the income.
- If your letting income is between £1,000 - £2,500 in a tax year you can simply contact HMRC and you will not be required to prepare a tax return. They may, where appropriate seek to collect an estimate of tax on lettings income through PAYE coding system.
- If your lettings income is over £2,500 in a tax year this should be reported to HM Revenue & Customs on a self-assessment tax return. (see Registration and Tax return due dates below)
It is not possible to claim both property allowance and rent-a-room relief.
Rent-a-room relief (room only lets)
Rent a room relief enabled an individual to receive letting income for the letting of a room in their main home and to receive £7,500 without any tax liability arising. From 6 April 2019 HMRC clarified that rent-a-room relief will not apply for situations where an individual does not continue to occupy the property through periods of letting. For instance, an individual cannot claim rent a room relief whilst they let out their London property during Wimbledon fortnight and take a holiday to the Maldives.
Expenses
When your costs are in excess of the £1,000 allowance the allowable expenses you can deduct from lettings income to calculate the taxable income are the amounts on which you need to spend money in the day to day running of letting the property. Examples are:
- AirBnB fees
- Insurances specific to letting
- Other advertising fees
- Cost of any gifts or welcome packs that you provide for your guests
- Cost of cleaning the property between lettings
- Cost of tea/coffee/milk provided
- Cost of any letting specific items provided
- Proportion of utility bills, service charges relating to the letting
- Replacement or washing costs of bed linen associated with letting
- Replacement of other furnishings/domestic items which need replacement due to wear & tear of letting (you must remove the previous item from the property)
From April 2022 mortgage interest will no longer be able to be deducted from letting income in calculating taxable profits. Mortgage interest will only be available as a 20% credit to offset against any tax due. If you only let part of your property then the allowable interest deduction will be further restricted.
Registration
If you have an obligation to report your taxable letting income to HMRC this should be done on a self-assessment tax return. If you have not already been set up with a 10-digit Unique Taxpayer Reference (UTR) then you will need to obtain this from HMRC by filing a form SA1
https://www.gov.uk/government/publications/self-assessment-register-for-self-assessment-and-get-a-tax-return-sa1
HMRC should be notified of any new sources by 5 October following the end of the tax year when the income first arose. i.e. 5 October 2019 when the income first arose between 6 April 2018 and 5 April 2019.
Tax return due dates
The first tax return will then be required by 31 January in the year following the end of the tax year. In the example above income in the year to 5 April 2019 must be reported online to HMRC by 31 January 2020 (paper returns by 31 October 2019).
Any tax due on the letting profits arising is due by 31 January following the end of the tax year (filing deadline for online returns).