Tax for Airbnb landlords

Airbnb is a great way to meet new people, introduce them to new experiences, and of course, get a bit of extra income out of your property. We offer straightforward advice to help you make the most of it.

Simon Thandi, UK Landlord Tax

Hi, I’m Simon.

I’m one of the Directors of UK Landlord Tax. When I talk to Airbnb hosts, I hear the things they enjoy about what they do are usually the same things I love about being a landlord myself – finding that perfect property, putting your own mark on it and making it a great place for people to stay. What they don’t like is the complexity of tax and compliance, but that’s where we come in. If you need any help with your Airbnb let, give us a call.

Hosting on Airbnb should be fun, not a burden

We take the stress away with specialist property tax advice.

Airbnb vs buy-to-let

Compared to traditional letting, hosting on Airbnb is fast-paced, with guests coming in and out throughout the year. It can be a really rewarding experience if you enjoy meeting new people and introducing them to the things you love about your home.

On the other hand, that usually means you’ll need to be more involved in maintaining the property, and the seasonal variation in bookings can make it feel less stable for those who are used to longer-term rental contracts.

A lot of the time, the best option depends on your personal choice – but whatever you decide on, having an expert on hand to deal with tax and financial planning will make it less stressful and more profitable.

The benefits of hosting on Airbnb

One of the big advantages of short-term letting is flexibility. You have the freedom to access your property in between your guests’ stays, make renovations to it or even spend some time there yourself.

Plus, depending on where your property is, there’s the potential for much higher rates than you would charge for rent. If your property is in an in-demand area, setting it up on Airbnb can be highly lucrative.

There’s also some potential for tax advantages, which will be good news to landlords who have been affected by the cuts to mortgage interest relief and lettings relief in recent years.

In particular, there are three very substantial tax reliefs:

  1. Full tax relief for mortgage interest payments. But a word of caution – many lenders regard Airbnb as a commercial undertaking, so interest rates can be higher than for traditional buy-to-let.
  2. You can claim capital allowances on the fixtures and fittings from day one. Compare this to a buy to let where the cost of fixtures and fittings is generally only allowed on a replacement basis.
  3. Business asset disposal relief. Previously known as entrepreneurs’ relief, this is a substantial incentive in that when it comes to selling your Airbnb you could qualify for the gain to be taxed at just 10%. Compared to the current capital gains tax rates of 18% or 28%, the savings could be very significant. If you have more than one Airbnb, there is also the possibility of selling off individual properties separately and still claiming business asset disposal relief on each property.

Why work with a specialist?

When it comes to property, there are a lot of specific and complicated tax rules that are different to the ones you’d need to know about if you were running a retail business, for example, or arranging your personal finances.

There’s stamp duty and capital gains tax to think of when you’re buying and selling, as well as expenses, allowances and reliefs that only apply to property.

To get the most out of your Airbnb property, you need clarity and certainty on all those areas of tax, and frankly, working with a generalist accountant isn’t good enough.

As specialist accountants for property owners – and landlords ourselves – we know the ins and outs of property tax and we’re dedicated to giving our clients straightforward, valuable advice. 

Frequently asked questions

Do I have to pay tax on Airbnb income?

Usually, yes. 

If you’re hosting as an individual, rather than as a limited company, the money you make through Airbnb is considered a part of your taxable income. 

If your taxable income as a whole goes above the personal allowance, which is £12,500 in 2020/21, you’ll be charged at your marginal rate of income tax.

There are also various allowances and reliefs that might make some or all of your Airbnb income tax-free, depending on your circumstances. 

What expenses are deductible from my Airbnb income?

You can deduct expenses from your Airbnb income before tax as long as they were incurred “wholly and exclusively” in running the business.

This might include:

  • full tax relief for mortgage interest
    general maintenance and repairs to your property, but not improvements
    water rates, council tax, gas and electricity
  • insurance
  • costs of services, such as cleaners
  • accountant’s fees.

You can read our full guide on deducting expenses against rental income here.

What tax relief can I get on Airbnb income?

Everyone has a property allowance of £1,000 in each tax year, for any income you get from land or property. If you own a property jointly, each owner is eligible for the full £1,000 against their share of the rental income.

If you’re eligible for this and your annual gross property income is £1,000 or less, you don’t need to tell HMRC or declare this income on a tax return.

Alternatively, you might qualify for:

  • The rent-a-room scheme, which allows you to earn up to £7,500 tax-free in 2020/21.
  • Furnished holiday letting status, which comes with several tax advantages.

Our blog post on the tax advantages of Airbnb covers this topic in more detail.

What is the Airbnb 90-day rule?

This is a rule that applies to London in particular – you can’t let your Airbnb property out for more than 90 days per calendar year in Greater London, unless you have planning permissions that allow you to do this. Airbnb automatically prevents bookings once you’ve reached that limit.

This is important to your tax affairs because it means you can’t meet the qualifying conditions for a furnished holiday let if your property is in Greater London.

Is Airbnb considered self-employment?

That depends.

Generally speaking, the money you make from property in the UK is classed as rental income for the purposes of income tax, rather than trading income, unless the work you do amounts to running a business.

In HMRC’s eyes, the usual jobs you’ll have to carry out as a landlord don’t count as a business – things like dealing with repairs, cleaning communal areas, and managing utility bills.

Furnished holiday lets are an exception to this. If your property meets the conditions for a furnished holiday let, your profits will be treated as earned income.

Finally, if you’ve incorporated your Airbnb business, another set of rules applies. You won’t be classed as self-employed for tax purposes, but as an employee of your limited company – even if it’s just you running it. Any salary you take will be taxed in the same way as employment income, and dividends will be taxed at separate dividend tax rates.

In any case, if you earn more than the £1,000 property allowance in a tax year or you’re a limited company director, you’ll need to register for self-assessment with HMRC and complete a tax return by 31 January after the end of each tax year.

Sould I set up a limited company for Airbnb?

Forming a limited company can be a tax-efficient option in some cases, with corporation tax charged at a rate of 19% on company profits, compared to income tax rates which currently stand at 20%, 40% or 45% depending on your income threshold.
You can then pay yourself through a salary, dividends, or a combination of both.

A company can help to protect your personal assets if things go wrong, as it means you’re making all of the company’s finances, and any debts, separate from your own.

Becoming a limited company director does mean taking on a new set of administrative responsibilities, however, and you’ll need to send corporation tax returns to HMRC and file accounts with Companies House.

Plus, things can get very complicated if you want to use a property you already own. Transferring your property to a limited company might incur stamp duty and capital gains tax charges, and interest rates on company mortgages can be expensive. We’d always recommend getting professional advice before you take this step.

Globe icon Fees for Airbnb

Single owner

One property Airbnb

Easy tax returns for individuals with a single Airbnb property.

Per owner, from

£300

+VAT

Joint owner

One property Airbnb

Easy tax returns for joint owners with a single Airbnb property.

Per owner, from

£200

+VAT

Single owner or Joint owner

Additional properties/owners

With more properties in your portfolio, it’s likely to be time for serious tax strategy. Our experts will work with you to make sure you have the right ownership structure and are taking advantage of available reliefs and allowances to keep your liability under control.

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