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The accessibility of short-term holiday let sites like Airbnb, along with some favourable buy-to-let tax rules, mean that renting out property is a great opportunity to bring in extra income. We’ve prepared this guide to explain what this might mean for declaring and paying tax on any earnings you make from a property rental, and ways that you may be able to save money.
 

Am I allowed to rent my property as a holiday let?

Is Airbnb classed as being self-employed?

Do I have to pay tax on Airbnb income?

How do I pay tax on Airbnb income?

How much tax will I pay on my earnings from Airbnb?

The Rent a Room Scheme and Airbnb

What is Section 24 for landlords?

What about Capital Gains Tax for Airbnb hosts?

Maybe. Whether you’re looking to let the whole property or just a bit of it, if it’s mortgaged you’ll need to check your lender’s terms and conditions around renting it out to anyone.

Some lenders can be very specific about what they allow, and breaking their rules can have very harsh – not to mention expensive – consequences. Having said that, if you’re honest about your plans, many mortgage providers will consider requests on a case-by-case basis (though this might be subject to additional fees).

Check with your mortgage provider, freeholder, or landlord before renting out.

 
Generally speaking, short term lets aren’t a problem. If you plan to rent out the property for longer periods then you may need to switch mortgages. This is why it’s so important to check with your lender early on, and discuss your plans with them.

Also bear in mind that if you rent the property yourself, or if it belongs to a council or housing association, then subletting may not be permitted. So again, seek permission first.

When the whole of a property (or a part of it) is rented out, the resultant income is classed as rental income. It’s easy to get confused here, because Airbnb hosts are making money as a small business/sole trader, so it does look like they’re self-employed. But actually, they’re not – and different tax rules apply.
 

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You must declare any property or self-employment income if the total amount you receive from it in a tax year is more than £1,000. This is thanks to the tax-free trading allowance.

What does the trading allowance mean for Airbnb rental income?

The trading allowance means that you can earn up to £1,000 of property income or as a sole trader each tax year, and you won’t have to declare this to HMRC. If you have both types of income (you’re a sole trader and you earn money from property) you’ll get a £1,000 allowance for each.

What happens if I earn more than the allowance?

You’ll need to register with HMRC, and declare the earnings that you make from renting out your property on Airbnb (or whichever method you might be using).

Will HMRC know about my Airbnb rental income?

Yes, there’s a very good chance they will! Platforms such as Airbnb fall under the digital platform reporting rules, so they’re required to collect information about what you earn from renting out your property through the site, and then report this to HMRC. You’ll receive a copy of the data they pass on, so it’s crucial to ensure this is accurate.

To declare your income as a sole trader, you’ll need to register for Self Assessment by 5th October following the end of the tax year that you need to report income for. Once registered, you’ll need to submit Self Assessment tax returns and provide the details of all your earnings from that tax year, including anything you might already have paid tax on, such as wages from an employer.

Anything you earn over the Personal Tax Allowance (currently £12,570 for the 2023/24 tax year) will be subject to tax just like any other type of income, but the good news is that there are other allowances and types of tax relief that you might be able to claim to reduce your bill.

This is because the tax that you pay is based on your profits (what’s left after deducting any allowances or expenses), rather than the total amount of income.

Claiming the trading allowance on your tax return

Remember that £1,000 trading allowance that we mentioned earlier? You might still be able to claim this, even after you register with HMRC. On your tax return you’ll be given the choice of claiming either the trading allowance or your expenses.

You might have a tax-free allowance separate to your main income if you rent a room on Airbnb. The Rent a Room Scheme can be claimed by anyone who rents out a room in the property they live in. It doesn’t matter whether the room being let is furnished or unfurnished.

It’s worth noting that you can’t claim the Rent a Room Scheme and the trading allowance at the same time for the same income.

 
Landlords letting out a room in this way can benefit from a further £7,500 tax-free allowance from this rental income. Obviously, the relief won’t be claimable by all Airbnb hosts, but it’s a valuable tax break for those who want to rent out just one room in their main residence.

An example of working out the Rent a Room Scheme

Mark earns £20,000 per year from his main job. As an employee he pays tax at 20% on anything he earns over his personal allowance (currently £12,570). In this case, the amount of income subject to tax is £7,430. His employer deducts the tax each time they pay him.

Mark also rents out a room in his house through Airbnb. Thanks to the Rent a Room Relief scheme, he can make an additional £7,500 maximum income and not need to pay any tax on it.

How it works for couples

Couples will often rent out a room in their home on Airbnb together. If this is the case, then the Rent a Room allowance is split equally between them into £3,750 each (as long as the room is inside a joint main residence).

For all other situations, for example if a group of friends own the house, then the Rent a Room relief cannot be claimed. That means tax will be due on the Airbnb income straight away.

What is the Rent a Room Scheme?

Section 24 refers to an update to UK tax laws dealing with the way tax is calculated for landlords. The changes mean landlords can no longer deduct mortgage interest and other costs (such as mortgage arrangement fees) from their rental income before working out their tax liability.

It’s significant, because deducting allowable expenses from income reduces the amount which is subject to tax, therefore reducing the tax bill.

It’s worth noting that Section 24 does not apply to properties considered to be a Furnished Holiday Let.

Does my property qualify as a Furnished Holiday Let?

To answer this question, it’s important to know what a ‘Furnished Holiday Let’ actually is in legal terms. To be an FHL, your Airbnb must:

Do Section 24 tax rules apply to Airbnb?

Large numbers of Airbnb hosts are avoiding the Section 24 interest relief restriction because their properties are indeed Furnished Holiday Lets as discussed above. Section 24 rules come into force on properties not classed as FHLs.

The restriction essentially means that higher rate tax payers can’t claim full relief on their mortgage interest. Many people are finding it makes financial sense to move from traditional long-term letting to Airbnb, due to increased income but less tax.

If your property is a Furnished Holiday Let, and you don’t live there full time yourself, you can claim Capital Gains Tax relief. This may include:

Don’t forget about VAT

Remember that if you earn £85,000 or more from your Airbnb rental, you’ll need to register for VAT. You can decide to charge VAT to your guests directly by adding it on top of the rental rate, or you might simply choose to absorb the VAT yourself.

Alternatively, you could compromise by slightly increasing your nightly rate so that you bear some of the VAT burden, and share it with your guests. The advantage of this is that you don’t take the full financial hit, and your prices are still competitive.

Make your Airbnb project a success and discover our online accountancy services for property managers. Call 020 3355 4047, or get an instant online quote.

About The Author

Beth-Anne Bruce

I'm an experienced and fully AAT and ACCA qualified accountant, who is enthusiastic about helping business owners succeed. I also love cooking and needlepoint (at different times!). Learn more about Beth.

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Robert Franks
Robert Franks
27th October 2021 5:08 pm

I have a managed AirBnB property with a Holiday Buy to Let mortgage in my name..

I’d like to run the income and expenses through my company business account..and pay myself dividends..

Is this possible if the mortgage is in my name and not the company’s?…

Elizabeth Hughes
Admin
Elizabeth Hughes
28th October 2021 9:47 am
Reply to  Robert Franks

Hi Robert Thanks so much for your message! Technically speaking, no. As the property is in your personal name, you would have to sell/transfer it all over to the limited company: https://support.theaccountancy.co.uk/en/articles/3850484-property-investment However, the property could manage your property business and charge management fees, which would act as an expense to you personally and income through your limited company. You would have to be careful that this is done for a commercial reason. I hope this is useful, but contact one of the team on 020 3355 4047 (or use the live chat button on screen) if you like, and… Read more »

Richard Daley
Richard Daley
8th April 2022 3:48 pm

Hi Elizabeth,

I have an Airbnb rental (a furnished home let). Does vat get calculated on the gross amount in airbnb and not the host payout which is less (3% plus vat)

Thanks

Rich

Elizabeth Hughes
Admin
Elizabeth Hughes
12th April 2022 10:31 am
Reply to  Richard Daley

Hi Richard

Thanks for your message. It’s calculated on the gross income before any deductions. Hopefully this helps, but the team are available on 020 3355 4047 if you wanted to chat about it with one of us.

Best wishes

Elizabeth

Caroline
Caroline
18th July 2022 5:52 pm

Hi,
I want to start renting several rooms out in my home where I live in London. It is a jointly owned home with my husband who doesn’t live with me anymore and our finances are separate. I pay all the household bills including the interest on the mortgage and my husband doesn’t contribute at all. My question is can I put all the income gained through airbnb through my tax return alone?

Elizabeth Hughes
Admin
Elizabeth Hughes
25th July 2022 5:28 pm
Reply to  Caroline

Hi Caroline

Thanks very much for your question. Unfortunately, you won’t be able to do this. Because the property is owned 50/50, anything that you declare will need to be in line with this i.e., you would each need to declare half each, to reflect the 50/50 split. If you’d like to chat about anything in more detail, you’re very welcome to call the team on 020 3355 4047, and we’ll do what we can to help!

Best wishes

Elizabeth

Airbnber
Airbnber
3rd October 2022 10:50 pm

How to declare taxes when legally speaking a FHL is not supposed to be legal in that area/building etc but the owner still goes ahead and continue profiting from the FHL?

Elizabeth Hughes
Admin
Elizabeth Hughes
6th October 2022 2:42 pm
Reply to  Airbnber

Hi there

Thanks for getting in touch. An FHL does need to be reported on your tax return, as with other property income. It’s worth noting that the tax treatment is slightly different to a normal property because it’s recognised as a trade, which means that you get the same allowances as a trade of business.

If you have any questions just let the team know on 020 3355 4047 and we’ll do all we can to help.

Best wishes

Elizabeth

Kamile
Kamile
19th March 2023 4:33 pm

I am renting out a property where I am allowed to sublet it on Airbnb.
Can I set up a Limited Company, have the income go to my business bank account and pay myself dividends from that rental income? Will this be more tax efficient than paying income tax as a sole trader?

Elizabeth Hughes
Admin
Elizabeth Hughes
23rd March 2023 10:34 am
Reply to  Kamile

Hi Kamile Thanks for getting in touch. You can indeed set up a limited company to own your property and rent it out that way, although you will need to transfer ownership of the property to your new company. Just be aware that if you sell a property to the company then you may be subject to Capital Gains Taxes. Your question about tax efficiency is a bit more complicated to answer! This partly depends on how much income you earn (from the property and from other sources), as well as your preferences for how you take a personal income… Read more »

megan
megan
12th July 2023 5:13 pm

My partner and I have started Air BnB on a property that is solely in his name and are likely to make £50k a year through this. He hits the higher tax threshold and I am very close to hitting this also. Would it be beneficial to put the house into a company instead of paying personal income tax? On this we don’t currently have a company set up.

Thank you.

Megan

Elizabeth Hughes
Admin
Elizabeth Hughes
18th July 2023 12:14 pm
Reply to  megan

Hi Megan

Thanks very much for your message. There isn’t a straightforward answer to this because there are so many considerations. For instance, if you ‘sell’ the house to the limited company then you might incur Capital Gains Tax. In this situation you might find it useful to chat to a solicitor about the costs involved, although if there’s anything at all we can do to help, just let us know!

Best wishes

Elizabeth

Curious
Curious
14th July 2023 12:10 am

I’m a first time homeowner renting out rooms on Airbnb while also living in the same property as my main residence. Can this be classed as a FHL, or would I fall under the ‘rent a room’ scheme?

Elizabeth Hughes
Admin
Elizabeth Hughes
18th July 2023 12:17 pm
Reply to  Curious

Hello there

Thanks for getting in touch. Depending on the amounts involved and your individual circumstances, you might find it most useful to use the Rent a Room Scheme. FHLs are treated more like a business but as you also live in the home it complicates it. Sorry not to be more specific! Do get in touch if you’d like to go over the details with us.

Best wishes

Elizabeth

Nigel Bagge
Nigel Bagge
16th October 2023 2:58 pm

Hi my daughter has started to airbnb her house for the odd weekend when she and her husband are away. the house is pwned 50/50 so I guess any income should be declared on that basis. Do they each get the £1000 trading allowance though or is that split between them?

Many thanks

Elizabeth Hughes
Admin
Elizabeth Hughes
17th October 2023 10:37 am
Reply to  Nigel Bagge

Hi Nigel

Thanks for your message. The property allowance is personal to each tax payer, so your daughter and her husband are each entitled to their own £1,000 property allowance for money they earn through letting the house on Airbnb.

I hope this helps, but please do let us know if there’s anything we can do to support them.

Best wishes

Elizabeth

Nigel Bagge
Nigel Bagge
17th October 2023 10:40 am

Many thanks Elizabeth. I will pass your details to them.

Elizabeth Hughes
Admin
Elizabeth Hughes
17th October 2023 10:41 am
Reply to  Nigel Bagge

You’re very welcome, have a lovely day!

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