This summer will be your first stab at the Airbnb market. You’ve read a lot about the various alternatives for tax deductions and allowances you can claim, but which are open to you and which can save you the most tax?
LETTING INCOME ISN’T ALL THE SAME
Airbnb style property letting has become popular in all areas of the country. Even traditional holiday home landlords are getting in on the act by advertising their properties through Airbnb and similar marketplaces.
You might think that the income tax position for every such landlord would be the same, but it’s not.
TYPE OF LETTING
A key factor which determines the tax deductions and allowances you’re entitled to is whether the letting can be categorised as a business (a furnished holiday let (FHL)), instead of just rental income. To qualify as an FHL you must make it available for letting and actually let it for a minimum number of days each year.
RENT-A-ROOM RELIEF
Where you let part or all of your home while you’re temporarily absent, rent you receive will be tax exempt if the income you receive is no more than £7,500 .If you own the property jointly with one or more other persons you’re each entitled to half the exemption, i.e. £3,750 each. If the total rental income exceeds £7,500 you can choose to deduct either the actual letting-related costs or the rent-a-room relief amount.
OPTING IN OR OUT
You can choose between using or not using rent-a-room relief from year to year depending on which is more tax efficient, but you’ll need to make an election. For example, if your expenses exceed your income, i.e. you make a loss, for a tax year, opting out of rent-a-room relief will generally be more tax efficient because the loss can be used to reduce taxable income from other rental properties in the same or later years.
LOW RENT
There’s another special tax allowance for rental income specifically for anyone who receives small amounts of rental income called the property allowance. It works, with minor differences, in a similar way to rent-a-room relief but is only £1,000 rather than £7,500 and can be claimed only where rent-a-room relief or FHL status doesn’t apply.
If you let your property for enough days it counts as a “furnished holiday let”.This generally offers more scope for tax deductions. It applies if you let all or part of a property regardless of whether it’s your home. If you let all or part of your home you could instead claim rent-a-room relief which exempts income up to £7,500
WE CAN HELP
It is essential to prepare your business in advance of these changes. AIRBNB is a complex area of tax and in this article, we have only been able to touch on some of the issues involved with the changes. If you think you are likely to be affected by these changes or want to know more about RENT-A-ROOM RELIEF, OPTING IN OR OUT, LOW RENT, FURNISHED HOLIDAY LET. Contact us. We can work with you to ensure you are well prepared for the new system.
ALL THIS AND MORE
We offer all the above as part of our full Tax Services and Accounting and can also help you with Capital Gains Tax, Inheritance Tax, Retirement Planning, even filling out your Self-Assessment Tax Returns for you.
