Tax For Short Lets

Turning your home into a temporary rental space while you're away can be a lucrative endeavour. This is often referred to as a Furnished Holiday Let (FHL) and is a popular way to generate additional income. However, if you're in the UK, it's crucial to familiarize yourself with the specific tax obligations that come with this venture.

Many hosts find themselves caught off-guard by the tax implications of generating income through platforms like Airbnb. Being ahead of the game in terms of tax planning is far preferable to facing unexpected fines later. Moreover, understanding the tax advantages and allowances available can significantly benefit you as a host.

What Makes Your Property a Furnished Holiday Let?

To determine if your rental qualifies as a Furnished Holiday Let, it's essential to meet certain criteria. Your property should be:

-Listed on rental platforms like Airbnb for at least 210 days annually.

-Adequately furnished for guests' everyday needs.

-Located within the UK or the European Economic Area (EEA).

-Actively rented out to the public for a minimum of 105 days in the year.

-Meeting these conditions means you could see some tax benefits detailed in our FHL Tax Guide.

Why is Airbnb Income Taxable?

Initiating an Airbnb venture, even as a side project, essentially means running a small-scale business. This requires you to declare any income earned and pay taxes accordingly. In the UK, there's an allowance enabling you to earn up to £11,850 annually without paying tax. If your rental income stays within this threshold, you're exempt from tax. However, surpassing this amount means you must declare the income and fulfil your tax obligations.

Understanding Your Tax Obligations

The tax you owe varies depending on whether you're renting out a room in your primary residence or an investment property. Hosting within your own home offers certain tax benefits while operating an Airbnb business from a separate property subjects you to business owner taxes.

Business Rates and Furnished Holiday Lets:

In the UK, the designation of your property as a business-rated self-catering property depends on how frequently it's available for rent:

-In England, properties let for more than 140 days a year are subject to business rates.

-Wales follows a similar rule, with the added requirement of actual rental for 70 days.

-In Scotland, the criteria for business rates are also based on availability, but local assessors determine the specifics.

-Properties operating as guest houses or B&Bs catering to more than six people may also incur business rates.

Council Tax vs. Business Rates

Properties available for short-term rent for less than 140 days a year are liable for council tax instead of business rates.

Offsetting Losses

The ability to offset furnished holiday letting losses against other income was removed after April 2012. Now, losses can only be offset against future profits from the same property.

VAT Considerations

Remember, if your rental income crosses the £85,000 threshold, VAT registration is mandatory. This might mean charging an additional 20% VAT to your guests, absorbing the cost, or slightly increasing your rates to cover the tax.

Benefits of Paying Airbnb Tax

-Profits can be counted as earnings for pension purposes

-Allowances can be claimed for fixtures, furniture and certain types of equipment in your home

-Capital Gains Tax relief programs such as the Entrepreneurs’ Relief or Business Asset Rollover Relief may apply.

Support for Micro-Entrepreneurs

The UK encourages micro-entrepreneurs through a scheme that allows a £1,000 deduction from gross rental income, simplifying the tax calculation process.

Capital Gains Tax Relief

Investing in a property to turn it into an Airbnb can also be financially advantageous, especially if it qualifies as an FHL and isn't your primary residence. Benefits include lower capital gains tax rates and tax deferral options on property sales.

Seeking Assistance

Navigating the tax implications of your Airbnb can be complex. Fortunately, numerous resources are available, including the UK Government's Self Assessment Tax Returns guide, Airbnb's own taxation guidance, and tools like the Go Simple Tax Software for self-assessment.