There were some changes in the UK emergency budget this year that took many by surprise including me. The changes are not directly aimed at Airbnb hosts but will affect anyone who derives an income from property in some way.
1. The increase in the rent a room tax free allowance from £4250 to £7500 a year from April 2016 is excellent news for Airbnb hosts. Hosts earning £7500 or less will not need to declare any income to HMRC.
2. The end of the 10% wear and tear allowance for landlords (a non-cash deduction on gross rent) will end in April 2016.
3. A phased withdrawal of tax relief on mortgage interest for landlords for deductions above the basic rate of tax (basic rate is 20%).
For any Airbnb hosts who generally take in less than £7500 a year the changes are good news as there will be no tax to pay on all the income. However if your Airbnb income is greater than £7500 and you are relying on the wear and tear allowance and mortgage interest deductions to cut your tax bill then this is bad news.
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Tax deductions from your Airbnb income have changed[/caption]
The End of the Wear and Tear Allowance
The elimination of the 10% wear and tear allowance is expected to be replaced by a system of keeping recipes for expenses, like say if you bought a new lamp for the listing bedroom you could claim that as an expense. I personally preferred the wear and tear allowance to the expenses system as smart buying and maintenance of furniture and other items meant that it was theoretically possible to claim greater depreciation expense (wear and tear) over a longer period of time.
Mortgage tax relief for landlords restricted to the basic rate of tax
Possibly the biggest change in a generation is the end of mortgage relief for landlords at a higher rate than the basic rate of tax. Obviously you are unaffected if you only pay tax at the basic rate but most landlords will be in the higher rate of tax especially in the south east. Possibly for the first time in recent memory we will see a real reduction in the amount of investment capital flowing into the property market as the sums for many investors simply will not add up.
For more explanation of the end of mortgage tax relief see this article from thisismoney.