A firm of accountants has warned that homeowners using Airbnb to raise extra cash could end up in conflict with HMRC if they don’t declare their extra earnings.
Stefanie Stapleton, partner at Blick Rothenberg LLP, said: “The rise of Airbnb demonstrates the popularity of short term lets, where individuals can let out space (with “space” meaning anything from a futon in the spare room to an entire property) in their own homes. This is particularly popular for those living near sport and music venues, or airports, where the desire for short term letting can be high.
“Renting space in your main residence for just two or three weeks at a premium rent can be lucrative and, provided the income doesn’t exceed certain thresholds, may even be tax-free. However taxpayers should bear in mind that subject to the level of income generated, tax maybe due and they may need to register with HMRC. As the property is available to view online, HMRC can see this just as easily as a potential client can.”
Stapleton went on to remind homeowners that if the gross rents received from letting out their main residence exceed the ‘Rent a Room’ threshold, the income must be reported to HMRC. If the threshold is exceeded in the 2015/16 tax year, taxpayers should register with HMRC by 5 October 2016 to avoid potential penalties.
Rent a Room relief generally applies to owner occupiers and tenants who receive rent from letting furnished accommodation in their only or main home. The relief also applies where additional services are supplied such as meals, cleaning and laundry, meaning the majority of “hosts” advertising on Airbnb should be able to claim the relief.
Under the Rent a Room relief, the first £4,250 (rising to £7,500 from April 2016) of gross receipts can be earned tax-free. This limit applies to a tax year and, whilst it can be reduced to £2,125 (£3,750 from next year) if the property is owned jointly, it is not reduced according to the lettings period. Under the relief, expenses cannot be deducted from the gross income and any excess income above the threshold is taxable.
The alternative method available to taxpayers is to declare all rental income and claim deductions for expenses incurred in the provision of the accommodation.
“For any individuals not already in self assessment and whose rents are below the relief threshold, the exemption applies automatically and it is not necessary to register. For those individuals who are already registered for self assessment, any rental income must be reported on their annual tax return regardless of whether Rent a Room relief applies and the appropriate box should be ticked,” said Stapleton.
“The property must also continue to be the owner’s main residence throughout the let period. If a property is let for two weeks where the owner is on holiday and therefore not also in the property then the relief should be available, however if the owner spends his holiday at another property he owns then the relief may not be available as HMRC may consider that the owner has acquired another main residence at that point, if only for a temporary period. It is also worth remembering that the relief only replies to UK properties. People who let out their excess space need to play by the rules, otherwise they could find themselves in difficulty.”
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