Category: Airbnb Taxes

What taxes do you need to pay being an airbnb host?

My friend wants to start a airbnb business- What I told him…

It’s November in London and its getting dark at 4:30pm and the temperature is getting lower by the day. Apart from a few very warm days it was a generally wet and grey summer this year. My airbnb was full most days apart from the occasional empty room on a Sunday (to be honest its nice to have a day guest free day sometimes). My prices are as low as ever and it doesn’t seem likely to change any time soon. My competition in East London seems to have increased in my area over the last 5 years I have been a airbnb host, and is probably one of the reasons why my prices are still so low.

A friend who lives in the same area of East London as me asked me to the pub for a chat and it wasn’t long before he started asking about my airbnb. He wanted some advice on starting his own airbnb. He was more interested in having a country retreat style airbnb business; a small cottage perhaps in a nice part of the English countryside? I gave him my advice and on the whole he was not very happy.

There is a big difference between being a live in host (i.e. your listing is a room in your house or flat) and hosting a place that is separate from your residence (especially if some distance away such as in another town). It’s a huge problem if you have to travel long distances to check in guests, clean, or fix issues. This can make any profit you make on your listing simply not worth it.

I am a live in host so chances are if something needs to be done at my airbnb I am on hand to do it – immediately. Even if a guest arrives at 2am, it may mean dragging myself out of bed but I can do it and be back asleep in minuets (happens way too often for my liking). The idea of driving across town at 2am to do the same thing is a much bigger ask. Its the daily hassles that cause the most grief. Try to avoid them if you can. There are things you can do such as using automated check-in systems such as key safes but some things are only cost effective to do in person.

Automate your airbnb check-in process with key safe

The idea of having a airbnb listing out in the countryside may seen romantic but if it’s going to be a lot of trouble to manage then you have to ask yourself  – is it worth it? Unless you can charge big money for a few nights stay then by the time you factor in your costs and time you might be only making a few pounds. Cleaners don’t work for free and even then could be not available when you need them.

My friend who is thinking of starting his own airbnb business also quizzed me on how I get paid and what tax do I pay. I explained to him how that airbnb pays me only AFTER a guest checks in and the money can go into my bank account but it’s quicker if the cash is paid into my Paypal account. I also explained that my Paypal account in any name and can make payments straight out of my Paypal account to purchase almost anything. This means it does not have to hit my own bank account.

I explained to my friend when and how much tax he will need to pay on his airbnb business. How the government rent-a-room allowance works and what expenses he can claim. He seemed surprised that he would need to pay tax on the income and how much it would be. This is important because if you already have a full time job then the extra income is going to be taxed at a higher rate. It might make your airbnb business simply not worth it.

For more information on what tax you need to pay on your airbnb income read my guide here.

 

Airbnb hosts are not affected by the new buy-to-let tax rules

Have you heard of the new rules regarding the tax deduction on mortgage interest for buy-to-let (otherwise known as an investment property to the rest of the planet) in the UK? The recent announcement by the UK government that tax relief is going to be limited to 20% has just been made clearer by some of the details. You can read this article in the Telegraph for further details: http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11914142/Will-my-holiday-home-get-hit-by-the-new-buy-to-let-tax.html

The main point is Airbnb hosts could be exempt from the new rules and still be able to claim the full tax deduction. This will come as some relief for many an airbnb host including me. The general reason for this is that the government is considering “furnished holidays lettings” as a business and not just and investment. To qualify as a furnished holiday let the government has provided some criteria:

  • The accommodation must the in UK or EEA (part of the Eurozone) and be commercially let
  • It has to be furnished
  • It must be available for let at least 210 days of the year
  • It must have been let for at least 105 days
  • It cannot be let for a single trip of more than 155 days

For most hosts the above criteria will be no issue at all. The new rules do make some sense. Those hosts who are letting for less than 105 days of the year will most likely be claiming the rent-a-room scheme allowance and not be claiming any deductions anyway.

These changes only take partial effect in 2017 and not fully implemented until 2020 so a little planning should see you right.

The UK emergency budget July 2015 and how it affects Airbnb Hosts

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.

Tax deductions from your Airbnb income have changed
Tax deductions from your Airbnb income have changed

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 receipts for expenses, like say if you bought a new lamp for your airbnb listing bedroom you could claim that as an expense. I personally preferred the wear and tear allowance to the expenses system as smart buying 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.

Do I need to pay tax on my income from Airbnb?

What tax do i need to pay?
What tax do i need to pay?

Hotel Tax

In the UK there is currently no hotel occupancy tax and to my knowledge no intention to introduce one.

VAT 

VAT is payable on Airbnb’s service fee (collected by Airbnb at the time of booking so nothing for you to do here) but no VAT is currently chargeable on rent in the UK. If such a time comes the government decides that money earned from Airbnb is no longer rent but a service fee then VAT may become payable.

You will need to pay tax on your airbnb income
You will need to pay tax on your airbnb income

Income Tax

Income tax is payable on any earnings in the UK. The same applies in most developed countries. You are kidding yourself if you think that profits earned from renting out your rooms is not liable for income tax. However there are allowances such as the Rent a Room Scheme where no tax is payable (see below). So how much tax do need to pay? You pay income tax at your marginal rate (this means on top of any other income you earn for example your job). So if your already earning £50,000 a year from your employment then you should be paying income tax at 40% or more on your Airbnb income.

The Rent a Room Scheme

The Rent a Room Scheme is a UK tax free allowance when you rent a room in your house to a third party. This is applicable to ‘Shared room’ listings but no to ‘Entire place’ listings on Airbnb (that is unless is it usually your main home).

The Rent a Room Scheme lets you earn a tax free allowance of £7,500 per year. So if you earn less that £7,500 for your Airbnb lettings portfolio then you are in the clear and owe nothing. Note you cannot claim allowable deductions to bring your income figure below £7,500 and then claim the Rent a Room allowance. This is solely for those whose rental income is less that £7,500 full stop.

If you earn more that £7,500 from your Airbnb listings then you will be liable for income tax on the full amount – including the first £7,500! When you get into this category you will need to start thinking about what deductions you can claim.

Tax Deductions

Tax Deductable costs incurred from running your Airbnb listing might be:

  • accountants’ fees
  • buildings and contents insurance
  • interest on property loans (for example your mortgage)
  • maintenance and repairs to the property (but not improvements)
  • utility bills, like gas, water and electricity
  • rent, ground rent, service charges
  • Council Tax
  • services you pay for, like cleaning or gardening
  • other direct costs of letting the property, like phone calls, stationery and advertising

Of course you can hire a relative to be your cleaner/receptionist/accountant and pay her a tidy sum for a hours work and claim that on your expenses too. If Members of Parliament do it so can you.

Note: the Wear and Tear allowance 10% of rent was abolished in April 2016 for those who still think it exists.

Apportioning your income and expenses

If you are a live-in host then your going to need a apportion some of your expenses (for example your mortgage interest) depending on what percentage of the house is yours exclusively and what percentage was used by your guests. The generally acceptable method is by square footage of the property.

Capital gains tax

Theoretically you could also be liable for future capital gains tax if you are taking in more than one lodger at a time – Private Residence Relief and Letting Relief.

 

Become a Airbnb Host NOw

Ready to make some money being an Airbnb host? Then use the link below to get started!

Click here to become a Airbnb Host and starting making some money!

What will Airbnb charge me as a host?

Airbnb takes a commission for every booking your listing has. However how much of a cut depends slightly.

What fee do Airbnb hosts Pay?

Airbnb says it takes 3% of the hosting fee plus VAT (in the UK 20%) so If you charge £100 per night then the hosting fee will be £3.30. See here for more details on Airbnb help section.

note – Airbnb will round up it’s figures so if your hosting fee is £6.60 this will be rounded up to £7.

Airbnb charges hosts a percentage of the listing price per night
Airbnb charges hosts a percentage of the listing price per night

Airbnb guest fees

The guest also pays a fee of 0-20% of the total price called the guest service fee. Which listing pay 0% and which pay 20% you ask? I am not sure and to my knowledge Airbnb has not revealed this information. Most of the listings I have checked hover around the 14% mark the lowest I have seen was 8% and that was on a shared room for £10 a night. The only detail we know is that the higher the nightly price the lower the percentage.

Airbnb can pay hosts via Paypal or Direct Credit into your bank account
Airbnb can pay hosts via Paypal or Direct Credit into your bank account

Airbnb payments via Paypal

Airbnb will pay you your hosting money the day after the guest checks in. There are several methods of payment to choose from however the main two are via Paypal or Direct Credit into a bank account. What’s important here is the time it takes for the money to reach you. If your getting paid by direct credit into your bank account then this can take up to 5 working days (occasionally longer in my experience) however Paypal takes only a couple of hours if not instantly. You can then transfer into your bank account and have the money in a couple more hours after that.

There are two major reasons why you might want to choose Paypal instead of Direct Credit into your bank account. The first being the time it takes (Paypal can take only a couple of hours versus 5 days or more for direct credit). The second could be tax planning.