Tax Implications of Airbnb Hosting: How to Keep More of Your Income

Mindful Airbnb Hosting: Tax Implications to Keep in Mind

As an Airbnb host, it is important to be mindful of the tax implications of your hosting income. In this blog post, we will discuss how to keep more of your hard-earned money by taking advantage of deductions and HMRC tax reliefs available to you. So, whether you are a new or experienced Airbnb host, read on for tips on reducing your tax bill!

Rent a Room Relief

Hosts can take advantage of a tax relief when renting out rooms through Airbnb. One such relief is the rent-a-room relief, which allows hosts not to pay tax on up to £7500 of rental income from their main residence.

Choice of Legal Status

If you’re earning rental income on Airbnb to rent out a separate house or flat than your main residence, As a landlord, you won’t be able to get rent a room relief and will have other tax implications. You’ll need to choose between buy to let as a sole trader, a partnership, or a limited company. Each of these legal structures has its advantages and disadvantages.

Sole trader advantages

  • Obtaining a buy-to-let mortgage might be considerably easier.
  • You are eligible for a capital gain allowance when you sell a property.

Disadvantages

  • Mortgage interest is no longer deductible by sole traders.
  • If you operate as a sole trader, you must pay income tax on all of your rental profits.

 

 

Limited company advantages

  • You may pay yourself a tax-efficient combination of salary and dividends after paying corporation tax at a rate of 19% on rental income.

Disadvantages 

  • It entails extra filling requirements to companies house and HMRC, which adds complexity and effort.
  • There are additional mortgage costs associated with a limited company’s buy-to-let mortgage.

Furnished Holiday Letting FHL

Being a landlord as an individual (sole trader) you can take tax advantage by qualify for Furnished Holiday Letting through hosting on Airbnb throughout the year, you are most likely to qualify for FHL. You may expect to benefit from greater tax reliefs as a result. 

Eligibility criteria

The property must meet all the following conditions to qualify for FHL: The property must be available for letting for at least 210 days in a year, and it must be actually let for at least 105 days during the year. The property must be furnished. It must only be located in the United Kingdom or the European Economic Area (EEA). Most Airbnb buy-to-let properties will meet the condition of being Furnished Holiday Lettings.

Advantages of Furnished holiday letting status.

Furnished holiday letting (FHL) is a special property classification, which can offer landlords significant tax benefits. 

Mortgage Interest

Landlords who are eligible for FHL can claim full relief on mortgage interest. This can be a big saving, especially for those with large mortgages. 

Business Asset Disposal Relief (Entrepreneurs’ relief)

When you sell your FHL property, you will be eligible for Entrepreneurs’ relief. The capital gains tax rate will be only 10% instead of the normal 28% or 18%. 

Gift Hold-Over Relief 

You will be eligible for Gift Hold-Over Relief if you give away or sell your holiday home for less than it’s worth to assist the buyer.

Rollover  relief

If you sell your existing Airbnb property and purchase another one, you may be able to defer capital gains tax on the sale of existing property, called Rollover relief. 

Capital allowance relief

Furniture, fixtures, and equipment will be able to claim capital allowances. This is not the case for typical buy-to-let landlords.

Pension relief

For pension reasons, the income you make from a furnished holiday let is classified as Net Relevant Earnings (NRE) and allows you to make tax-advantaged pension contributions.

Disadvantages of Furnished holiday letting status.

VAT  registration requirement.

Airbnb falls within the definition of holiday accommodation and so standard rated. This has implications for your profits and pricing structure, as you’ll need to account for the additional 20% that is due on the cost of staying at your Airbnb. However, if your total rental income does not exceed the VAT registration threshold, you don’t need to worry about charging VAT. 

Subject to business rate

Property owners who offer furnished holiday lets are considered to be running a business, and they are subject to business rates. However, you may be able to get Small Business Rate Relief, which means you won’t have to pay council tax.

Thank you for taking the time to read this article! We hope you find this article informative. The information provided is meant to be used as a guideline only. They may not be relevant to your specific circumstances. To keep these enormous tax benefits, there are numerous requirements you need to meet. An effective tax plan by a tax professional specialising in property is crucial. It is recommended to seek out professional advice that considers the specific circumstances of your situation. We can help! We specialize in property tax consulting and can help you save money on your taxes. Contact us today to learn more about our services.

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