How is Airbnb income treated in the UK? | Taxes & tax relief

How is Airbnb income treated in the UK?

If you own a property you can make Airbnb income either by renting out a room in your main property or an entire house. It’s relatively easy to set up and has several advantages if you have a property in the right location.

Airbnb income is treated as taxable income in the UK. This means that you will need to declare it on your self-assessment tax return and pay tax on any profits you make.

The amount of tax on Airbnb income will depend on how much it brings in and the normal income tax rate. For the 2022/23 tax year, the personal allowance is £12,570. This means that you will not pay any tax on income up to this amount.

Any income you earn above this amount, including that which you earn through a main job, will be taxed at your marginal rate.

There are a few allowances and reliefs that you may be able to claim to reduce the amount of tax you pay on your Airbnb income. These include the Rent-a-Room Scheme, Lettings Relief and Wear and Tear Allowance.

Here we take a look at the ways your Airbnb income is treated for tax purposes and how to maximise your profits.

What is the difference between Airbnb landlords and typical buy-to-let landlords?

The main operational difference between the two is that buy-to-let landlords are usually looking for long-term tenants while Airbnb, because of its nature, involves short rentals.

Airbnb landlords have fewer legal responsibilities than typical buy-to-let landlords. This is because short-term lets are not subject to the same regulations as long-term ones.

For example, Airbnb landlords are not required to carry out right to rent checks and don’t have to worry about tenants not paying the rent.

Airbnb income is treated as taxable income in the UK. This means that you will need to declare it on your self-assessment tax return and pay tax on any profits you make. However, there are a few allowances and reliefs that you can claim to reduce the amount of tax you pay.

Finally, Airbnb can be more profitable than traditional buy-to-let, but it also comes with more risk. This is because Airbnb landlords are more likely to experience empty periods and damage to their property which can affect financial returns.

Are there more benefits to being an Airbnb landlord?

Airbnb landlords have more flexibility than typical buy-to-let landlords. They can choose when and for how long to rent out their property (for example, only opening it up during a season).

This can be a major advantage if you need to access your property for personal reasons. The tax rules also tend to be more simplified than for buy-to-let landlords who will often transfer to limited company status to maximise profits.

What are the tax requirements for Airbnb hosts?

Whether you pay income tax or VAT on your Airbnb income will depend on several factors. In general, you will be expected to pay the following tax on Airbnb income at some point:

Income tax

The amount of tax you pay will depend on your income and your marginal tax rate. For the 2022/23 tax year, the personal allowance is £12,570.

This means that you will not pay any tax on income up to this amount. Any income you earn above this amount will be taxed at your marginal rate. For example, the lower tax rate is 20%.

If you are working in a main job and hiring out your property for Airbnb, you need to calculate your tax based on both incomes.

Capital Gains Tax

Capital gains tax is paid on the sale of assets such as a property and is not paid on income derived by renting out. It’s also paid on the increase in the value of the asset and not the total value of the property.

In other words, you don’t need to worry about CGT until you decide to sell your property.

VAT on rent

You may be required to pay VAT on rent as an Airbnb landlord if your annual turnover exceeds the VAT registration threshold. For the UK, this is £85,000 for the 2022/23 tax year. If your rental income exceeds the threshold, you will need to register for VAT and charge it on all of your Airbnb bookings.

There are a few exceptions to the VAT registration requirement. For example, you are not required to register if you only rent out a room in your main residence.

What tax reliefs are available to Airbnb landlords?

There are a few important areas of relief and allowable expenses to consider when it comes to your gross income, tax allowances and paying income tax.

Rent-a-room scheme

This is a UK government scheme that allows you to earn up to £7,500 in rental income a year for your main residence without paying tax. The scheme is designed to help people who need to supplement their income by renting out a spare room in their home.

  • The room must be in your main residence.
  • You must be the only person living in the property, apart from your spouse or civil partner and any children under the age of 16.
  • You must not let the room out for more than 140 days in a year.

Business Asset Disposal Relief

If you are selling an asset like a property then you will need to pay capital gains tax. If, however, you are selling one Airbnb residence to buy another then you can defer capital gains tax until you come to dispose of the second property.

Capital allowances

Airbnb hosts can claim capital allowances on the cost of assets used in their business, such as furniture, appliances, fixtures and wear and tear.

Capital allowances are a tax relief that allows businesses to deduct the cost of capital assets from their taxable profits over a period of time.

To claim allowances on Airbnb assets, hosts must meet certain criteria. First, the assets must be used for the purposes of the business. Second, the assets must have a qualifying cost. That qualifying cost is the amount that the host paid for the asset, less any grants or subsidies received.

Gift relief

If the owner of an Airbnb decides to sell to a charity, they can again defer capital gains tax so that this is not payable immediately. The charity will calculate the amount due and pay it when they come to sell the property themselves.

Need an accountant for your Airbnb business? Contact us today

Whether you get Airbnb income as part of a full-time business or rent out on a more adhoc basis while working in a main job, it’s important to get the right advice to minimise how you pay tax.

Tax on Airbnb income is relatively simple, but it can be easy to miss areas where you might reduce your liability. At VW taxation, we’ve got a great track record of helping people manage their accounts for Airbnb tax.

Want to find out more? Contact our expert team today.

Conclusion

Many people with a room or a property to spare are attracted to using a service like Airbnb to supplement their income.

The way that Airbnb income is treated in the UK will depend on several factors and making sure you lower your tax liability is extremely important.

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Picture of Gary Ellis | Director | VW Taxation
Gary Ellis | Director | VW Taxation

VW Taxation are self employment tax specialists based in Portsmouth. We specialise in tax accounting for contractors, limited companies and the self-employed.

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