Tax can be a complex topic, and anyone who rents out property in the UK must be fully compliant with the rules. It’s an important consideration for those operating an Airbnb or short-term let.
The short-term rental sector has seen huge growth over recent years across the UK. The rise of the staycation, which has been put under the spotlight even more by the events of this past year, has led to more Brits than ever holidaying in the UK.
As a result, both existing landlords and those new to the industry have been entering the market. Many are attracted by the higher yields and certain tax differences compared to a long-term let. For others, the spare room allowance is the big draw. Homeowners who want to make extra cash renting out a spare room can earn up to £7,500 per year tax-free.
Airbnb under investigation
Earlier this year, Airbnb was investigated by HM Revenue and Customs regarding its UK tax arrangements. HMRC found that the company owed a further £1.8m in corporate tax, on top of the £1.1m it had paid.
Since then, the rental platform has submitted the income details of all the UK’s 225,000 hosts to HMRC. This will reportedly involve looking back over several years’ worth of taxable income. Therefore, all hosts and landlords are urged to “come clean” if they have not paid what they owe.
Fiona Fernie of tax and advisory firm Blick Rothenberg, said: “It could cost some people a lot of money in unpaid tax, interest and penalties. It does not just relate to the last tax year; HMRC are going to look back over several years.”
How does it work for short-term lets?
According to the Short Term Accommodation Association (STAA), the average short-term let host earns £3,100 per year at present.
Whether renting out a room in your home or a whole property or set of properties, you must pay the correct tax. This includes income tax, council tax, as well as business rates and VAT where applicable.
Hosts may be liable to pay business rates if they let a property out on a short-term basis for 140 days a year or more. This is because HMRC classes it as a self-catering property (or a business). The amount you pay will depend on things like property type, size, location and guest numbers. If you rent your property out for less than this amount, it is only subject to council tax.
In terms of income tax, there are a number of reliefs available to landlords and hosts. As well as Rent a Room relief (mentioned above), you can also claim a £1,000 tax-free allowance if you rent out a whole property. There are also certain allowable expenses that you can deduct from your final bill. See the government’s website for more details on this, or speak to an advisor.
Are short-term lets still worth it?
At the start of the pandemic earlier this year, many short-term let landlords switched to long-term. This was because they predicted that people would be travelling less this year. However, with international travel still under certain restrictions, the local holiday market has seen a revival.
One study by Park Leisure shows a 47% year-on-year rise in holiday home sales. Airbnb has also been operating over recent months, with new Covid-safe guidelines in place. As lockdowns have taken their toll on people across the country, taking shorter, more local holidays has become even more appealing.
However, with the recent tax investigation into Airbnb hosts, some warn that hosts should be careful of the sector.
David Alexander of proptech firm apropos says: “It was not hard to see the appeal of short term letting in financial terms, but many landlords may have entered this market somewhat naively and without fully understanding the implications.
“There are higher rents for short-term lets but also greater obligations and costs in terms of managing the property.”
“Greater cleaning and maintenance costs, higher insurance premiums, and the expectation that more damage is likely to be caused by a short-term tenant than someone who wants to establish a home in your property.”
If you let a property out on a short-term basis or are considering doing so, you are advised to seek full guidance on your tax position from an expert.
BuyAssociation works with a number of independent tax partners who can offer advice on short-term lets. Some of our property investment opportunities are also eligible as Airbnb homes. Get in touch to find out more, or sign up for free for early access to our best deals.
