February’s ‘Whit & Wisdom’: Navigating the Airbnb Terrain: Insights into Hosting and Tax Considerations

Tax rules are always changing. Currently, there is an increased surge of interest in taxing rental properties. This attention has not only drawn in new clients to our services. It has also hit closer to home for Anna, the director of Whittaker & Co. She uses the platform for rental properties. With these two views in mind, we’ve chosen to focus on Airbnb hosting and taxes for this month’s ‘Whit & Wisdom’ series.

In this article, we invite you to a candid conversation. It features Anna and Sofia De Crescentiis, an experienced Airbnb host. Sofia shares her views on the nuances, highs, and lows of being a host. Offering insights from her first-hand hosting experience. At the same time, Anna guides readers through Airbnb hosting taxes. This dual viewpoint aims to help readers understand both hosting and Airbnb’s key tax issues. The discussion covers practical aspects. It also covers industry insights and crucial tax issues. It aims to help readers navigate the complexities of Airbnb hosting.

We asked Sofia the following questions:

How did you become an Airbnb host?

“I started renting my own home out when going abroad many moons ago. It was back when Airbnb was still called ‘Air Bed and Breakfast’! As a passionate traveller, I also used it as a guest. I fell in love with the concept and the sharing economy in general. I no longer do this but manage my own property portfolio, including on Airbnb. I’ve also recently started co-hosting and now manage three local properties!”

What do you think are the pros and cons of the industry?

“Benefits definitely outweigh the downsides, but there are a few. Airbnb customer service is no longer what it was. You have to speak to many different people to have your claim handled. You have to explain over and over what your issue is.

Guests also now see Airbnb as on par with a hotel. They don’t realise that it’s usually an individual providing access to their home. There’s no full-time cleaning and reception team.

On the plus side, you get a lot more return than from a standard rent. And, you can let it out for shorter periods if you’re looking to move or sell your property. I love being able to deliver value for everyone I work with. This includes guests and co-hosts. I love being accountable without having to work a set number of hours.”

What should people be aware of before opening up their house?

“The single worst thing is that people do throw parties in properties. I’ve had two parties in one specific property. Besides the damage, it’s terrible for neighbour relations. Vet the people you’re inviting into your space. If you’re unsure, then the rental rate is not worth it!”

Anna highlights Airbnb’s versatility as a significant income source, aligning with Sofia’s journey. In navigating changing guest expectations, both hosts face challenges. These include parties, which emphasise the need for clear rules. Beyond personal experiences, many communities across the world share these concerns. Some have a negative outlook on Airbnb due to varying factors.

Hosts must stay well-informed to follow rules that apply to their unique business. The economy is always changing. Clear tax obligations are essential for hosts. They help hosts navigate the complex world of owning an Airbnb property.

Below, we’ve broken down and simplified various tax and Airbnb processes. This will help hosts stay on the right side of the tax man.

The trading allowance offers a valuable perk for Airbnb hosts. It allows up to £1,000 in property income or as a sole trader each tax year. They can do this without declaration to HMRC. If you have both income types, each qualifies for a £1,000 allowance.

Income Declaration:

  • No declarations are needed if earnings stay below £1,000 annually.
  • Cross the threshold? Visit HMRC’s self-assessment to declare and pay your tax dues.

Register with HMRC:

  • Ensure registration with HMRC, having your Unique Taxpayer Reference (UTR) ready.

Property Tax:

  • Airbnb hosts aren’t self-employed. Tax rates vary based on property type and earnings.
  • Everyone enjoys a tax-free income allowance (currently £12,570).

Find Airbnb Earnings:

  • Access earnings details in Airbnb’s Settings under “Transaction History.”

Section 24: UK tax law update:

  • Disallows deducting mortgage interest and costs from rental income before tax calculations.
  • Not applicable to properties classified as Furnished Holiday Lets.
  • Many Airbnb hosts opt for FHL status to sidestep Section 24 restrictions.

Furnished Holiday Let (FHL):

  • FHLs offer tax advantages. These include capital allowance, allowable expenses, and no National Insurance Contributions.
  • Potential for relief schemes, like Business Asset Disposal Relief.

Rent a Room Scheme:

  • Pocket up to £7,500 tax-free by renting a room, dropping to £3,750 for joint owners.

Income Tax Calculation:

  • Calculate income tax based on England or Scotland tax bands. We have provided a link to a tax calculator below.

Council Tax and Business Rates:

  • Council tax depends on property usage, and business rates apply if rented for 140 days or more.

VAT Consideration:

  • If taxable income exceeds £85,000, consider VAT implications carefully.

Managing Finances:

  • Organise finances by separating Airbnb income and expenses. Use a business bank account, such as Tide or Cashplus Go.

If you have any questions or seek further clarification, our team is here to assist you. Stay informed and happy hosting!

Estimate your Income Tax for the current year – GOV.UK (www.gov.uk)