Renting Your Flat With Airbnb: Your Taxes
You know you’ve reached investment heaven when you find a way to make money while you sleep. In practice this means putting your cash in safe hands and not lifting a finger yourself other than to grandly flick through a portfolio report every so often while lounging around in your fluffy bathrobe. So what’s not to love about making money while not only you, but a range of (clean and respectful, obvs) strangers are sleeping too?
Everyone knows about Airbnb and its game-changing takeover of the travel industry. But its role in personal finance just got a bit more complicated. 52,000 Britains rent out their places on Airbnb, netting each host an average of £3,000 annual profit. It’s a tempting way to earn. And even to find love!
But in this year’s budget the government outlined a dastardly scheme to cut tax breaks for short term lets. Like all tax news, this has a slight tendency to be what some naughty, anti-intellectual types (not us, of course) might call just a teensy bit boring.
So let’s break it down. If you rent out your entire home via Airbnb, you will be taxed on the profits. If you only rent out a single room, however, you would in the past have been entitled to tax relief to the tune of £7,500 a year (see the Rent a room scheme on HMRC website). Leaving aside the thorny psycho-sociological question of why so many people are happy to pad off to bed knowing that a stranger is sleeping in their spare room, the thinking behind this rebate was to encourage people to engage in small extra-mural, profitable ventures and contriubte to the “sharing economy”. If you are renting your whole house, this is purely income and you will need to fill in a self-assessment tax return.
If Westminster’s plans go ahead, a higher-rate taxpayer renting a room out in London (and let’s take a random guess that you fall in to that category) could be paying an extra £1,500 more in tax per year. And don’t forget, HMRC have a cheat-searching missile in the form of their new “Connect” IT system, which can cross-reference personal tax records with online databases from companies like Airbnb.
So the best advice for anyone renting out a room is to check the small print on everything the taxman and Airbnb send you, and be aware that things could change from month to month as new legislation is passed. If you don’t have an accountant who can talk you through the requirements for landlords, set aside a rainy weekend afternoon to familiarize yourself with the rules on the HMRC website, and cross-reference it with the latest links for users on Airbnb. And enjoy having a bunch of strangers use your bathroom!
Photo by Joseph Albanese on Unsplash.