In Depth

Budget sting in the tail for Airbnb landlords

Hosts may be stopped from claiming rent-a-room tax relief

Hidden in the small print of last week’s Budget was some bad news for Airbnb hosts. 

The government wants to stop people who rent out a room via the holiday lettings website from being able to claim rent-a-room tax relief.

At present anyone renting out a room on Airbnb is able to claim the relief, which allows people to earn up to £7,500 a year from lodgers before having to pay income tax.

But, the Treasury revealed in the Budget red book that there would be a consultation to “redesign” the relief to make sure it focused on people renting rooms out to long-term lodgers.

“This will align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings,” the Budget document states.

“As rent-a-room was introduced to increase the supply of affordable long-term lodgings, it would appear the government review is taking place in direct response to the popularity of short-term letting sites,” says Ally Walmsley, from the Residential Landlords Association in The Times.

If the Rent-a-Room scheme is changed so Airbnb hosts are no longer covered, it could increase a host’s tax bill by £3,375 a year.

At present, a higher rate taxpayer earning £500 a month by letting a spare room via Airbnb doesn’t have to pay any tax on that income. If they were no longer able to claim Rent-a-Room tax relief they would have to hand over £2,400 to the Treasury.

Any change could affect around 52,000 Airbnb hosts around the country. Although people renting out entire properties cannot claim the tax relief. The average host makes around £2,000 a year from Airbnb lodgers, rising to £3,500 in London.

The move is believed to be in response to concerns that the popularity of Airbnb is contributing to the housing shortage, with people preferring the profits of short-term lets to taking on long-term lodgers.

However, if changes are made and short-term lets are excluded from the Rent-a-Room scheme there are still ways to cut your tax bill.

Hosts would be able to take advantage of the new ‘sharing economy’ tax break that is being introduced in April. It allows people making money from eBay, Etsy or letting out their home to make up to £1,000 a year before paying tax. You can’t claim this allowance if you also claim Rent-a-Room relief.

You can also make a number of deductions from your profits before you calculate what tax you may owe. For example, you can deduct ‘just and reasonable’ expenses such as mortgage interest and utility bills. You can also claim Replacement Relief, which allows landlords to deduct the cost of replacing items such as carpets or kitchenware. 

“If rent-a-room relief is abolished, those renting room in their houses will need to keep detailed records of their income and any deductible expenses, including for replacement furniture etc, and are likely to need to register for self-assessment to file tax returns and pay the tax due,” says Patricia Monk, director at accountancy firm Deloitte, in the Daily Telegraph.

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