Tax Guidance For Airbnb Hosts

Airbnb is the go-to place for affordable holiday accommodation. Anyone with a spare room can make money by letting someone stay in their home for a night or two – and playing host on the platform can prove to be a money-spinner in the long term.

Yes, renting out your property when you’re not using it can be a great way to make a quick buck – but there are tax rules you need to be aware of. These have tripped up more than a few Airbnb hosts over the years. This article provides the guidance you need to stay in the taxman’s good books.

DO I HAVE TO PAY TAX ON AIRBNB INCOME?

Everyone is entitled to earn a certain amount of money tax-free, but must pay tax on any income that exceeds their ‘Personal Allowance’ (currently set at £12,500 as of 2020/21). Airbnb earnings are not exempt. They’re added to your total taxable income, and it’s all taxed together.

However, you may have a separate tax-free allowance from your main income if you rent a room on Airbnb. It’s called Rent a Room relief. To qualify, you must only rent a single furnished or unfurnished room, and the property has to be your main residence.

As of 2020/21, the government’s Rent a Room scheme means you don’t have to pay tax on the first £7,500 you earn from this rental every tax year. If you’re letting jointly (for example, with a partner or friend), then it’s £3,750 for each of you.

In any other case, you count the Airbnb earnings on top of your earnings elsewhere, using the Personal Allowance threshold of £12,500. Anything exceeding it will be liable for Income Tax.

Remember that all your non-PAYE earnings must be included and submitted as part of your Self Assessment tax return. You can use software like GoSimpleTax to keep track of your income and expenditure throughout the year, and then use this information to complete and submit an accurate tax return straight to HMRC.

HOW MUCH TAX DO I HAVE TO PAY ON AIRBNB INCOME?

Anything above your Personal Allowance once you’ve deducted any reliefs is taxed just like other types of income. The rate of tax you’ll pay depends on which tax band you fall under – 20% for basic rate, 40% for higher rate and 45% for additional rate. These apply to England, Wales and Northern Ireland. The rates for Scotland vary.

Don’t forget about VAT, either. If your total income from Airbnb rentals exceeds the VAT threshold of £85,000, then you’ll need to add a VAT charge of 20% on the rent. You’ll need to be VAT-registered as well.

WHAT TAX RELIEF CAN I GET ON AIRBNB INCOME?

If your property is not your main home and qualifies as a furnished holiday letting, you may be entitled to several forms of Capital Gains Tax relief, including:

• Entrepreneurs’ Relief – A 10% Capital Gains Tax rate instead of 28% when you sell your property
• Rollover Relief – If you sell one Airbnb residence and buy another, you can defer Capital Gains Tax on the sale of the initial property (basically, you save yourself from having to pay tax for the time being)
• Capital allowances for property furniture and fittings

Please note that you can’t claim back expense costs if you’re using Rent a Room relief. This may suggest you’ll minimise your tax liability more without it. You might, for example, wish to replace furnishings under the Wear and Tear Allowance instead. Always compare your estimated tax bills with different allowances and reliefs factored in to ensure you’re maximising your take-home pay – tax return software can help you here.

Additionally, HMRC has tightened up the rules of the Rent a Room scheme. You must be in the property yourself some or all of the time it is let out. This is designed to prevent people from moving out and renting their properties during a specific event (such as Wimbledon) to abuse the relief scheme.

TAKE ADVANTAGE OF TAX SOFTWARE TO MAKE AIRBNB LETTING SIMPLE

Tax software plays an important role in compliance in the gig economy. There’s a lot to wrap your head around when renting out an Airbnb property, and the rules get particularly confusing when you reach the upper echelons of the earnings scale.

Take advantage of GoSimpleTax tax software and you won’t have to worry about the complications of Airbnb rentals. With our Self Assessment software, you’ll be prompted, advised and guided when you input your earnings figures – ensuring you pay exactly what you owe and enjoy any tax relief you might be entitled to.

It’s fast, seamless and mobile. Our full service also enables you to photograph receipts, which are scanned for expenses before being added into our platform to build a real-time picture of your tax status.

But you don’t need to pay a thing to start benefiting from GoSimpleTax. Sign up for our free trial today and stay on top of all your Airbnb tax commitments.

Read our How to take airbnb tax deductions as a host article

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.