Tax shock for homeowners who let house on Airbnb

Treasury curbs could lead to annual bill of £3,000 for renting out property while away on holiday

EXTRA taxes are on the way for homeowners who let out their properties when they are on holiday, as the Treasury cracks down on use of a tax break for lodgers.

People who use Airbnb and other short-term lettings websites can expect to be hit with a bill of as much as £3,000 per year as a result.

Owners can earn up to £7,500 per year tax free by renting a room to a lodger, or offering their whole home for short-term stays, under the “rent-aroom” relief.

But under new rules to “clarify” the relief from April 2019 they will only get the tax break if it is part of a property – not the whole home – and if the owner is present for at least some of the guest’s stay.

“Generally, those letting out spare rooms are doing so in order to generate small amounts of additional income, and do not see the activity as their main source of income,” said the Treasury’s summary of its call to evidence, arguing that using the relief on a whole home breaks the spirit of the existing rules, if not the letter. “Those letting out whole properties will typically receive higher levels of income, let those properties out for a longer period of time, and may often operate more like commercial landlords.

“Under the current design of rent-aroom relief, those letting out whole properties as well as spare rooms can currently benefit.”

To stop this, and return to the original aim of the rent-a-room relief, it is introducing a new “occupancy clause”, which limits use of the relief to spare rooms in shared homes only. This “will require the individual to be resident in the property and physically present for at least some part of the letting period. Doing so will return the relief to its original purpose of incentivising the letting of spare rooms”.

Instead a much lower £1,000 trading and property allowance will apply to earnings from the property.

“This is a dramatic hike in tax for people who are affected,” said George Bull, senior tax partner at RSM. “What we’ve got here is a really interesting three-way clash. In one corner we’ve got an old rent-a-room relief from 1992, which is pretty generous now.

“In another we’ve got a new relief, the trading and property income relief. And in the third corner we’ve got something which was never envisaged when the rent-a-room relief was introduced, which is Airbnb and the whole sharing economy. In a way, it is not surprising this problem has arisen, and to see HMRC recommending the shared occupation condition.”

Around 170,000 places to stay are offered through short-term lettings websites in the UK, and those who rent their entire main home stand to lose out as a result. They have already come under pressure from extra regulations.

After councils demanded changes to its operations, Airbnb last year imposed a 90-day limit on annual wholeproperty lettings after complaints that so many homes were turning into holiday properties that it was harming the residential lettings market.

Airbnb said its guidance to hosts has always been that they should only claim the relief on rooms, not entire properties. “This is great news for UK hosts who open their homes and share the best of British hospitality with guests from around the world,” said Natasha Mytton Mills, the company’s UK policy manager. “The UK continues to be a world leader for the sharing economy and we will continue to be good partners to the Government as it rolls out further guidance.”