Reporting Airbnb income to HMRC
Digital platforms such as Airbnb can be used to earn income from property in a variety of ways, ranging from the occasional let of a spare room to short-term lets of a holiday home all year round. In this article, Kirsten Hancock explains how income from letting accommodation short term through Airbnb and similar platforms should be reported to HMRC.
Digital reporting rules came into effect on the 1st of January 2024 which require certain UK digital platforms to report income information to HMRC. With the first reports due to be made in January 2025. The rules apply to Airbnb and similar platforms which facilitate the letting of short-term accommodation, Airbnb has previously shared earnings information with HMRC and will continue to do so in line with the new reporting rules.
From a tax perspective, the way in which Airbnb and other similar income is taxed, if at all, will depend on the nature of the income and on the personal circumstances of the recipient.
The income that is paid by Airbnb to the host comprises of the nightly fee, the fee for other services such as cleaning, minus the commission that Airbnb charges the host. Airbnb also charge guests a booking fee, which is paid directly to Airbnb by the guest.
Property allowance
The property allowance is available in addition to a person’s personal allowance and other allowances, such as the personal savings allowance.
If income from property does not exceed the property allowance (£1,000 for 2024/25), it does not need to be reported to HMRC. If the allowance is exceeded, but the recipient’s total income is sheltered by their available personal allowance, similarly it does not need to be reported to HMRC.
FOR EXAMPLE:
If a person receives income of £13,000 from letting short-term accommodation through Airbnb and this is their only income, as their total income is less than the total of their personal allowance (£12,570 for 2024/25) and their property allowance (a further £1,000), there is no tax to pay and nothing to report to HMRC.
The property allowance can still be beneficial if property income exceeds £1,000 and the personal allowance has been used up elsewhere. Where this is the case, the allowance can be deducted from the income from property rather than deducting actual costs. This is beneficial where actual costs are less than £1,000 as it will reduce the taxable profit and consequently the tax payable on the profit. In this case, the income does need to be reported to HMRC on the tax return, and the resulting tax is payable through the self-assessment system.
Rent-a-room scheme
The rent-a-room scheme can be beneficial where you let a spare room in your own home through Airbnb or a similar platform, the room must be let furnished. The scheme allows you to earn up to £7,500 a year tax-free. This is reduced to £3,750 per person where two or more people share the income.
To qualify, you must either share your home with the guest or be running a bed and breakfast.
Where the income received is less than the rent-a-room limit, either £7,500 or £3,750, depending on how many people benefit from it, it does not have to be reported to HMRC and can be tax-free, regardless of the level of the recipient’s other income.
Where the income exceeds the rent-a-room limit, the recipient has the choice of deducting the limit or their actual costs. Where the costs are less than the rent-a-room limit, claiming the relief will be beneficial. The property pages of the self-assessment return will need to be completed where this is the case, and the relief can be claimed in the return.
If a loss is made, consideration should be given to reporting the loss to HMRC rather than benefiting from the rent-a-room scheme, particularly if it is anticipated that a taxable profit will arise in the future, as this will preserve the loss for future use.
Furnished holiday lettings
The special regime that applies to furnished holiday lettings comes to an end on 5th April 2025. However, where the conditions are met, it is possible to benefit from the rules for 2024/25 and earlier tax years. Under the scheme, landlords letting furnished holiday accommodation can deduct interest and finance costs in full in calculating their taxable profit and claim capital allowances. They also benefit from various capital gains tax business reliefs, including business asset disposal relief, rollover relief and gift holdover relief.
Airbnb and similar sites are widely used for the letting of furnished holiday accommodation. To fall within the furnished holiday lettings rules for 2024/25, the following tests must be met.
1. The pattern of occupation condition – the total of all lets in excess of 31 days does not exceed 155 days in the tax year.
2. The availability condition – the property must be available for letting as holiday accommodation for at least 210 days in the tax year. Any days when the landlord stays are excluded from this total, as the property is not available for letting on those days.
3. The letting condition – the property must be actually let commercially as furnished holiday accommodation for at least 105 days in the tax year. Lets of more than 31 days are excluded from this total (unless the let only exceeds 31 days due to unforeseen circumstances), as are lets to family or friends free of charge or for another rate.
If a property fails the letting condition for a year, all is not lost. The property may be able to remain in the regime if an averaging election is made where the landlord has more than one holiday let, or alternatively, the landlord is able to benefit from a period of grace election where the property qualified as a furnished holiday let previously.
From 2025/26 onwards, income from letting furnished holiday accommodation will be taxed as for other income from residential lets. Where the business ceases prior to 6 April 2025, transitional rules allow access to the favourable capital gains tax rules for a limited period.
Other letting income
Where the income received from Airbnb does not fall into any of the above categories, it will be taxed in accordance with the property income rules, which treat all UK income received from properties owned by the same person in the same capacity as forming part of a single UK property business. As above, the profits from furnished holiday lets are calculated separately for 2024/25 and previous tax years, but from 2025/26, the income and expenses will be amalgamated with those from other types of let within the same property business.
The profit is found by deducting expenses incurred wholly and exclusively in relation to the property business from the rental income. Where rental income is £150,000 or less, in most cases the cash basis will apply by default, although the landlord can elect to use the accruals basis if preferred. In calculating the profits of the business, interest and finance costs relating to residential lets are not deducted. Instead, relief is given in the form of a basic-rate tax reduction, whereby 20% of the interest and finance costs (capped at the tax due on the property income) is deducted from the tax bill. Capital allowances are not available for fixtures and fittings; instead, relief is given where these are replaced.
As with other types of taxable property income, the income must be notified to HMRC on the self-assessment return. The associated tax is payable through the self-assessment system.
IN SUMMARY
It is important that where Airbnb and similar income is taxable, this is declared to HMRC. The new reporting rules mean that HMRC will be aware of it, and where it is not declared and the tax is paid late, interest and penalties will also be due.
All Airbnb income is not equal and it is important to identify the nature of that income and to apply the correct tax rules.
Please do contact our team for any further queries you may have in relation to tax and holiday letting accommodation.
