Taxability on Properties Let Out on Airbnb

Taxability on Properties let out on Airbnb

In the past few years, Airbnb has become a popular mode of accommodation for travelers. With covid restrictions being eased, travel will soon resume its pace, and visitors in the UK will again start availing of the service. The main advantage of accommodating via Airbnb is cost-effectiveness, hence is very popular among visitors from around the globe. If you are considering letting out your residence via Airbnb then this is for you!

Is income from Airbnb taxable?

Yes, income from Airbnb is taxable. However, there is an exemption of upto£7,500 every year. This means if your income via Airbnb is within the permissible limit, then you need not even show it. In cases where income exceeds the exempted limit, tax has to be paid on the exceeding amount.

There are two ways to let out your property via Airbnb:

  • Letting out the same furnished property where you reside
  • Letting out a furnished property which is buy-to-let in nature.

What is the eligibility for renting under Airbnb?

As the UK tax law, your property should qualify as “Furnished Holiday Letting (FHL)”. By the term “Furnished Holiday Letting”, we mean the property is furnished for the guests to accommodate along with the given conditions:

  • Property has been highlighted as let-out for at least 210 days in a tax year
  • Property must have been occupied by visitors for at least 105 days in a year
  • Property must be located in the UK or any place under European Economic Area (EEA)

If the above-mentioned conditions are not satisfied, the income from the property will be considered as normal rental income.

Airbnb Hosting in Self Occupied Property

When you are using your own residence as a let-out under Airbnb, then you are eligible for an allowance of £7,500 every year. The provision also allows you to let out a place that is not even owned by you, such as rented flats or houses. Using the place as a guest house or running a bed + breakfast center will also fall under this category.

When income from renting via Airbnb is shared between 2 people (say, you and your wife), then each individual is only eligible for £3,750 as allowance.

Computation of tax when income exceeds £7,500

There are two ways of computing taxes when income exceeds the given allowance:

Option 1 (Deduction Method)Option 2 (Flat Allowance Method)
Under this method, you will first make deductions from income and then pay taxes on the remaining amount.

For example: Your income is £20,500 and your concerned expenses such as gas and electricity bills are £9,500. Then you’ll be paying taxes on £11,000 (£20,500 – £9,500)		Under this method, you will not make any adjustments on the income and will deduct the available allowance.
For example: Your income is £20,500. So, you’ll make a flat deduction of £7,500 from the total income and pay taxes on the remaining amount.

Option 2 is desirable in case there are no big expenses from your pocket. Meanwhile, you are free to switch the method of computation every year.

Buy-to-let Property used only for Airbnb

If you are using your buy-to-let property for Airbnb only, then the allowance of £7,500 is not available. Your income from such property would be treated as rental income. Under this condition, you can only compute your tax under Method 1 as mentioned above.

Impact of Section 24

Airbnb landlords will not fall under the purview from Section 24 as they will fall under the category of Furnished Holiday Lettings. Nonetheless, if the property doesn’t fall under FHL, then Section 24 will be applicable . For people who are unaware about Section 24, it is an amendment that applies to income generated from residential rental properties. Introduction of this section withdrew the benefit of claiming interest paid on mortgage as a deduction from taxable income. To read about Section 24 in detail, click here. 

Applicability of VAT

As a landlord, you may be aware that income generated from letting out residential property doesn’t fall under VAT. However, Airbnb falls under holiday accommodation and is treated same as hotels. As a result, landlords would be required to collect VAT @ 20%. Applicability of this collection remains relevant when your total income from letting out property via Airbnb exceeds £85,000 in a tax year.

As landlord, if you are interested in letting out your property under Airbnb but are unsure whether it falls under FHL category or not, consider speaking to an accountant for landlord in UK. To get in touch with us, call: +44 3301331114 or write to us at [email protected].