Airbnb income is taxed in the same way as the any other income is taxed, however, there are some exemptions available. This depends on if you are renting the room in the property that is your main home or it is buy to let property.
Rent a Room Relief
You will get rent a room relief if you qualify for the rent a room scheme. To qualify for rent a room scheme you should meet the following requirements:
- If you are renting a room in your house that is your main residence. It does not matter if you own the house or not.
- You rent a room is furnished. There is no limit on the number of rooms that you rent , you can rent as many furnished rooms as you want as long as they are in your main residence.
- The letting is not for business use.
You will qualify for the relief even if you are running it as a bed and breakfast guest house as long as it is in your main home and furnished.
WHAT RELIEF DO YOU GET?
If you qualify for rent a room relief you will get an exemption on first £7500 of your income. This relief is applied on the rental income that you will get before deducting any expenses. The rental income is the figure that you get by adding all the receipts from your Airbnb customers. (The figure that you get after deducting all the expenses is your rental profit)
If the total of all the rental income is less than £7500 per year you will get an automatic exemption and you wont even have to declare it in your annual tax return.
If you are sharing this income with your spouse the allowance is halves and each of you will get £3, 750.
If the total rental income from Airbnb hosting income is more than £7500 you will have to declare it to HMRC in the annual tax return. If your income relates to tax year 2020-2021 you will have to pay tax on or before 31 Jan the following year.
HOW DOES IT WORK?
If your income is more than £7500,you have 2 options available to you
Option 1: you can deduct all the expenses that are directly related in renting the property and you pay tax on the rental profit that you get depending on which tax band your income falls into. Please note that in the budget the personal allowance and the tax bands are set to increase from the tax year starting April 2021. For tax bands see here.
Option 2:If your Airbnb income is more than £7500 and you want to claim rent a room relief on it you can deduct £ 7500 from the recipients that you get, however in that case you cannot deduct any expenses (such as heat, light, electricity).
You can use either depending on how much expenses you can deduct. If your expenses are less than £7500 you will be better off if you claim rent a room relief.
The relief is not available to the buy to let property, the income tax will be calculated in the normal way as any other self employed business.
If you are looking for a property accountant in Croydon, Surrey who can help you with taxes contact Taxaccolega at 020 8127 0728 if you are renting property, or selling and buying property in London we can help you with that.