10 min read
Renting out a room on Airbnb can be a highly lucrative source of income, especially during the peak holiday season or if you’re located somewhere popular like London or Manchester.
Airbnb hosts are legally required to report their rental income — over the years, though, many would choose not to. With the recent crackdown by HMRC on Airbnb tax evasion, tricks like that are set to become much harder to pull off. Let’s take a look at how this is likely to pan out.
What are the rules around income tax on Airbnb listings?
Typically, how much income tax you pay on an Airbnb listing depends on the amount of the income, whether you’re renting out all or part of a property, and how much taxable income you earn from elsewhere. Here are what the basic rules look like:
- Under the Rent-A-Room scheme, you don’t need to pay tax if you live on the property and earn an Airbnb income of less than £7,500 a year.
- If your earnings exceed £7,500 a year, you’ll need to declare the excess income on your tax return and pay tax on it.
- If you own the property jointly with someone, the £7,500 allowance is split evenly between you both.
- If you claim relief under the Rent-A-Room scheme, you cannot also claim tax expenses. You’ll need to pick whichever is more tax-efficient for you – ask Golding Accountancy for advice.
- If the property is your primary residence, you can only rent out one room in it (furnished or unfurnished).
- If you host a second property or one that is not your main residence, you get a tax-free allowance of £1,000 every year. This is called the Trading Allowance.
- If you earn taxable income from a property you co-host but don’t own, you’ll be taxed as though you owned the property.
- You don’t need to pay tax unless your income exceeds the personal allowance threshold (£12,570 currently).
What does the HMRC crackdown on Airbnb hosts look like?
Under the new regime, Airbnb will be directly sharing data with HMRC about listings in the UK that are likely to be subject to tax.
So far, HMRC has requested host data related to the 2017-18 and 2019 tax years. As a result of the findings, it sent many nudge letters to Airbnb hosts in 2023 and early 2024, asking them about their earnings and tax reports.
HMRC owns an advanced system called HMRC Connect that allows cross-referencing with any kind of financial and personal data, providing highly accurate insights into whether the data matches an individual’s tax returns.
If there are any discrepancies, HMRC will start asking questions. Airbnb has confirmed that it will share host data related to other tax years if requested, and HMRC is also planning to target hosts on platforms like Vrbo.
It also targets those who run side hustles by selling on platforms like eBay, Etsy, or Amazon. The goal of the HMRC crackdown on Airbnb hosts is to tackle the ongoing problem of tax evasion and level things out with how “regular” businesses are treated for tax purposes.
Overall, the HMRC crackdown on Airbnb hosts is set to continue well into 2024 and beyond.
How do I declare Airbnb income in the UK?
To declare the income, you must report all the rental income you earn from renting your property on Airbnb. This includes payments you receive from guests, any additional fees charged (like cleaning fees), and any other income associated with your rental activities.
You must keep accurate records of all these transactions. This information is typically reported on your Self Assessment tax return.
How do I report tax on my Airbnb income in the UK?
Airbnb income should be reported on your Self Assessment tax return. Here are the steps to report your Airbnb income:
- If you’re not already registered, sign up for HMRC’s Self Assessment.
- Maintain detailed records of all your Airbnb-related income and expenses.
- Complete the Self Assessment tax return, including the section for property income. Report your total rental income and any allowable expenses.
- You can file your tax return online or by paper by the deadline (31 October for paper and 31 January for electronic submission, following the end of the tax year).
What happens if someone hasn’t paid their taxes?
If HMRC discovers that an Airbnb host didn’t pay their taxes, the consequences will be as follows:
- There will be no extra penalty for those who made a genuine mistake—they will only have to pay the tax owed.
- Those who didn’t take reasonable care will have to pay the tax owed plus a penalty of up to 30% of the amount.
- For those who made deliberate errors, the fine can range between 20% and 70% of the amount owed.
- The penalty could go up to 100% of the tax owed for deliberate errors that the person concealed from HMRC on purpose.
In some cases, HMRC may start a discovery assessment to inquire into the last four years of an individual’s tax returns. If there is a case of not taking reasonable care, this can extend to six years. If someone has deliberately been concealing information, this can extend to 20 years.
How does Airbnb income get taxed in the UK?
Airbnb income is subject to Income Tax in the UK. The amount of tax you pay depends on your total income and which tax band you fall into. Here’s how it works:
- Your rental income is added to your other sources of income (like salary, dividends, etc.).
- You can deduct allowable expenses from your rental income. These may include things like maintenance, utilities, and service fees.
- After deducting expenses, the remaining profit is taxed according to the UK’s Income Tax bands (20%, 40%, or 45%).
- You can earn up to a certain amount (the Personal Allowance) tax-free, which is £12,570 for the 2023/24 tax year.
If you qualify, you may also use the Rent-a-Room Scheme, which allows you to earn up to £7,500 per year tax-free from letting furnished accommodation in your home. If you opt for this scheme, you won’t be able to claim expenses. Contact Golding Accountancy to find out more.
What if I haven’t been paying tax on my Airbnb income?
You’ll need to take action immediately to minimise the penalty from HMRC. Luckily, the Let Property Campaign exists for this very purpose. This lets UK landlords get up to date with their tax payments as simply as possible before HMRC launches any investigation against them.
- If you want to participate in this scheme, you must notify HMRC first.
- Then, you share all the details of the income/gains you haven’t shared so far, along with how much penalty you think you should pay.
- Finally, you make a formal offer and pay whatever tax is due.
- HMRC will consider your cooperation and the nature of your mistake before taking action. Any deliberate mistake will attract a higher penalty than a simple error.
Final words
The HMRC crackdown on Airbnb hosts isn’t to be taken lightly. With official Airbnb data at its fingertips, HMRC will find and confront any Airbnb host who hasn’t paid what they owe.
The goal is to ensure that every UK landlord and business owner pays taxes on their Airbnb income, even if the actual tax amount isn’t that much.
If you’ve been evading tax on your Airbnb rental income for whatever reason, you must take immediate action to keep your penalties to a minimum.
Going forward, ask your accountant to help you file your returns on Airbnb income while taking advantage of any reliefs you’re eligible for.
Remember: paying taxes might not be fun, but it’s a far safer option than having HMRC start looking into your affairs. So get ahead of it while you still have the time. Good luck!
FAQs
1. How much can you earn from Airbnb before paying tax?
It really depends on what kind of space you’re renting out.
If you’re opening up a spare room in your own home, you can earn up to £7,500 a year before paying any tax. That’s part of the Rent a Room Scheme, and it’s a handy little allowance for people who host guests every now and then.
If you’re renting out a second home or a separate property, you get a smaller allowance — £1,000 a year tax-free. Once you earn more than that, you’ll need to tell HMRC and pay tax on the profit you make after expenses.
Keeping a note of what you earn and what you spend makes life easier. It also helps you work out if you’re close to the limit or need to file a return.
2. How to avoid paying tax on Airbnb in the UK?
You can’t avoid paying tax completely — but you can definitely make sure you’re not paying more than you should.
Here’s what you can do:
- Use the Rent a Room Scheme if you’re renting out a room in your main home. It lets you earn up to £7,500 a year tax-free.
- Use the £1,000 property allowance if you’re renting out a different property or holiday let.
- Keep receipts for cleaning, repairs, and Airbnb service fees — you can deduct those when working out your profit.
The best thing you can do is stay organised and use the rules to your advantage. It’s not about avoiding tax — it’s about knowing what you’re entitled to.
3. Do you have to declare Airbnb income in the UK?
Yes, if you earn rental income, you must declare it when required. Key points:
- If you earn above the tax-free thresholds (e.g. above the Rent a Room limit (£7,500 pa) or the £1,000 property allowance), you’ll need to complete a Self Assessment return and declare the income.
- Even if you’re below the thresholds, but you already file a tax return for other reasons, you should include it.
- HMRC can check data from platforms like Airbnb, so records should be correct.
Yes, declaring is necessary unless you clearly fit into a relief, which makes it tax-free, and you’re not required to file for other income.
