Air BnB can generate a decent side income and as a result, understanding how the tax works is important. Here’s a short summary on what is taxable and what reliefs maybe available to you.
Do I need to pay tax on Air BnB income?
The short answer is technically yes. Having said that, in the right circumstances you can use the ‘Rent a Room Scheme’ that can make much (or all) of your income tax free.
The Rent a Room relief allowance is currently £7,500 a year at the time of writing. You can earn this amount tax free from your Air BnB income if you qualify (see below).
There is also another allowance called the ‘Property Allowance’. This allows you to
- Enjoy £1000 tax free
- Deduct a flat £1000 from your Air BnB income instead of the normal expenses. You might do this if you didn’t qualify for Rent a Room relief and your income was very small.
As a side note, if you have no other income, you can earn £12,570 a year (in 21/22) from all sources tax-free anyway!
What’s the catch with the Rent a Room Scheme?
There are some key things to understand about Rent a Room relief:
- The accommodation you are renting needs to be furnished accommodation in your main residence (i.e. do you share a front door with the people staying?).
- The allowance is per property. So, if you own the property with someone else, the allowance is split 50/50 (£3,750 at the time of writing).
- The Rent a Room relief is an allowance on ‘gross’ rents (the money you get in), rather than profits. This means that if your rental income is more than £7,500 before costs, you have some further calculations to do.
What if my rents are more than £7,500 but I still qualify for Rent a Room?
Then you have two options:
1. Take your income and deduct a flat £7,500 (or £3,750 if joint property) from that to arrive at your taxable profit.
2. Deduct your actual expenses and be taxed on that profit. This can be useful if your expenses are more than the Rent a Room relief.
What about if I’m letting another property purely for Air BnB?
If you are renting out a separate flat/house and don’t qualify for Rent a Room relief, you won’t be able to use the £7,500 allowance. In that case, you calculate your profits like any other landlord, deducting your expenses from your income, and reporting this on a tax return.
For example, if you had £10,000 in, and paid £4,000 out in gas/electric, repairs etc, you’d pay tax on the £6,000 profit.
Be aware! Your let may be classed as a ‘furnished holiday let’, which have some pretty great tax rules surrounding them. You will still pay tax on the profits, but when it comes to things like tax on interest deductions, or selling the property, the rules are much more favourable than normal residential buy to let situations.
For holiday lets, there are conditions around how many days the property is let out and available. For example, the property needs to be:
- Available to let for at least 210 days in a 12-month period
- Actually let for at least 105 days.
Finally, if your income is really small, you might use the Property Allowance in place of deducting your actual expenses. In this case, you take off a flat £1000 of your rental income to arrive at your profit.
How much tax will I pay on my Air BnB income?
That depends on your other earnings. On the taxable profit part (the bit over any allowances), it’s likely to be either 20%, 40% or even 45% if you are very lucky…. If your Air Bnb income and your other income combined are under around £50,000 a year, it will be 20%.
A final side note…. VAT
If you are lucky enough to have Air BnB income over £85,000 a year, you will be required to register for VAT (unlike normal residential lettings).
I’m still unclear which tax relief applies to me
Ask your accountant or book a consultation with us to help you untangle your AirBnB tax reliefs. We offer a paid 1 hour, 1-2-1 consultation so you can ask simple questions of an accountant. You don’t have to become a client, so it’s a great way for you to get the help, when you need it.