Many people boost their income through the provision of peer-to-peer accommodation rentals, using online platforms such as Airbnb. It is important that you check that you are reporting this income correctly, as the application of the short-term rental income rules is likely to be tightened up by HMRC in the near future.
Background
Short term rentals through online platforms such as Airbnb have grown dramatically over the past five years. Whilst the typical UK Airbnb host earned £3,000 in 2017, there will be many hosts in London and the Thames Valley earning significantly more.
Outside London, there are no specific limits on the number of days that a property can be rented out. However, London home owners should be aware that they are limited to using their residential premises for a maximum of 90 nights without first seeking planning permission from their local authority.
Income Tax
Your rental income can either be classified as ordinary rental income or as furnished holiday letting income, where different tax rules apply.
Furnished Holiday Letting Income
To comply for furnished holiday accommodation, the following criteria must be satisfied: -
- The property must be available for rental for 210 days per tax year. Please note this does not include any days where you are occupying the property.
- The property must be rented commercially to the public for at least 105 days per year
There are a number of advantages if your property qualifies as a furnished holiday let. This includes the availability of entrepreneurs’ relief on any gain made on the disposal of the property. Also, you are entitled to capital allowances for items such as furniture, equipment and fixtures, which can help to reduce your income tax liability. Lastly, the profits are considered as relevant earnings for pension purposes. If you own furnished holiday accommodation, do get in touch with our team of tax advisors at DRG Chartered Accountants to discuss your personal circumstances in detail.
Short Term Rental Income
If your property does not qualify for as a furnished holiday let, you can claim one of the following two allowances, but not both: -
- Property Allowance
The first £1,000 of gross rental income from your property is tax free as this amount counts as your “property allowance”. - Rent-a-room scheme
This scheme allows you to receive tax-free rental income if you provide furnished accommodation in the property in which you normally reside. If you qualify, the annual Rent a Room limit is £7,500 for the tax year 2019 to 2020. This reduces to £3,750 if someone else receives income from letting accommodation in the same property, such as a joint owner.
Please note that both of these options are based on gross rental income before the deduction of any expenses.
Alternatively, we can compute standard rental calculations to assess whether this would be more beneficial from a tax perspective such as if you have large rental expenses. Expenses, such as agents’ fees, home insurance and repairs, can be deducted from rental income. Mortgage interest as an allowable expense is currently being phased out. From 6 April 2021 no mortgage interest will be deductible against rental income. However, you will receive a tax reducer equivalent to 20% of the value of the mortgage interest, giving you income tax relief at basic rate.
Filing and payment deadlines
If you earn gross rental income of less than £1,000 per annum, you do not have to report this on your UK tax return. Otherwise, the deadline for an online tax return is 31st January 2020 for the tax period 6th April 2018 to 5th April 2019. The payment deadline for any payments due is also 31st January 2020 for the tax year 2018/2019.
If you would like to discuss furnished holiday lettings, short term rental income and your personal circumstances, please do see advice from the DRG Chartered Accountants’ tax team. The area is complex and seeking professional advice is strongly recommended.
For further information
The Growth in Short-Term Lettings
House of Commons Briefing Paper No 8395 6th September 2018
HMRC: Renting out your property (England and Wales) Paying tax and National Insurance
HMRC Guidance: HS253: Furnished Holiday Lettings (2018)
HMRC Guidance: HS223: Rent a Room Scheme (2019)
DISCLAIMER: This information is for guidance only, and professional advice should be obtained before acting on any information contained herein. We will not accept any responsibility for loss to any person as a result of action taken or refrained from in consequence of the contents of this publication.
