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Airbnb Tax Explained

29th June, 2023

Airbnb has fast become one of the most popular methods for travellers and holiday-goers to find somewhere affordable and convenient to stay when visiting different locations.

It has not only become popular with visitors, but it has also inspired many to rent out their homes, holiday properties, or spare rooms to guests as a genius way of making some extra earnings by utilising the property or spare room that you already own, making an extra source of income for yourself.

Some individuals even buy property as an investment plan to rent it out for short-term lets on Airbnb, as they have heard others successfully do.

While Airbnb letting might seem like a simple and easy money-maker, there are some tax rules to be aware of if you are a host on Airbnb. You should continue reading this blog to find out more about Airbnb taxes and what you are liable to pay in taxes on your Airbnb income.


What Is Taxed From My Airbnb Income?

Hosting through Airbnb is a great way to earn a second income, especially in the long term. However, it is normal to wonder where this leaves you in terms of tax.

Everyone is entitled to their Personal Allowance. This is the basic tax rate amount in the UK that individuals can earn before they have to start paying taxes (£12,570 for each tax year).

After your Personal Allowance, you must pay tax on your income – including earnings made from Airbnb.

Your Airbnb earnings are not exempt from your overall earnings; they are included in your total taxable income. After you have reached your Personal Allowance threshold, you will be liable to pay Income Tax.

Any Airbnb earnings that you make must be submitted as part of your Self Assessment tax return. It helps if you keep track of your income and expenditure throughout the year and use this information to submit an accurate and straightforward tax return to HMRC.

You need to register with HMRC to declare the earnings that you make from Airbnb.


Rent a Room Relief

Rent a Room Relief is a tax-free allowance that is separate from your main and other incomes. It is open to owner occupiers or tenants who decide to let out one furnished room. With the Rent a Room scheme, you will be able to earn up to £7,500 in tax-free income a year, which includes letting out your space through Airbnb.

Once you earn more than that, you must complete a tax return. HMRC has tightened the Rent a Room scheme rules, as you now have to be living at the property either full-time or partially to let it out and claim the Rent a Room Relief. This change came about to stop people from moving out and renting their properties during a specific event, therefore abusing the relief scheme.


How Much Airbnb Tax Will I Have to Pay?

The amount you will be taxed for your Airbnb income will depend on what tax band you fall under. This is 20% for a basic rate, 40% for a higher rate, and 45% for any additional rate. These are the tax rates that apply to England.

Don’t forget about VAT. If your income from Airbnb is greater than the £85,000 VAT threshold, then you will need to register for VAT and add a charge of 20% to the rent.


The Different Types of Relief You Can Get From Airbnb

There are several reliefs your Airbnb letting could qualify for if it is not your main home. These Capital Gains Taxes include some of the following:

  • Entrepreneurs’ Relief – this is a 10% Capital Gains Tax rate instead of 28% when you sell the property.
  • Rollover Relief – this is gained when you sell one Airbnb property and buy another one. You can defer the Capital Gains Tax on the sale of the initial property. This means you save yourself from paying the tax for the time being when you come to sell.
  • Capital allowances for property furniture and fittings – you cannot claim back expense costs if you are claiming the Rent a Room relief. If so, you may want to replace any of your furniture through the Wear and Tear Allowance.


Failing to Declare Airbnb Income

Airbnb has been forced to share its proceeds with HMRC, who have proceeded to crack down on Airbnb hosts who are earning income from Airbnb but failing to declare it to HMRC for tax purposes.

Earnings data has been collected and handed over to HMRC going back to the tax year of 2017/18. This follows an investigation into missing tax receipts.

Failing to pay the income taxes could result in penalties of up to 30% of the tax owed and even criminal prosecution.


Haggards Crowther Can Help You

At Haggards Crowther, we can help you make the most of your tax situation. Being the tax experts that we are, we can ensure that you are maximising your take-home-pay, from your Airbnb earnings as well as any other streams of income that you have.

Gaining an expert and professional accountant who knows the ins and outs of tax rules that apply to you, could be the most worthwhile investment that you ever make. We aim to help you navigate your finances and taxes so that you can get the most out of all streams of income.

We also help to take away any of the stresses that come from running a successful business or side hustle. This helps you focus on the making money side while we deal with the more mundane tax tasks.

As a family-run accounting business, you can rely on us and trust us with whatever. We offer a whole range of accounting solutions and services to meet your business or personal needs.

You can find the whole list of accounting services that we offer at Haggards Crowther on our website, from bookkeeping, personal and business taxes, crypto accounting, property assets, inheritance tax planning, and start-up support.

Contact us today at Haggards Crowther. As a London-based firm, you can reach us on 020 7384 0920 for our Parsons Green office or 020 7384 4898 for our Putney office. We very much look forward to hearing from you.