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