Airbnb - Tax Guide 2024 - United Kingdom

This guide has been prepared by an independent third-party ﬁrm.

November 2023

UNITED KINGDOM – TAX CONSIDERATIONS FOR SHORT TERM LETTINGS

This is a guide to some of the tax requirements that might apply when you provide

accommodation for short-term rental in the UK.

Tax can be tricky and it is important that you keep up to date with your tax obligations and

remain tax compliant. The timely preparation, ﬁling and payment of taxes are your responsibility.

If you are an individual supplying short-term accommodation in the UK, you should make sure

that you understand each of the following types of taxes, and pay the ones that apply to you;

● Income taxes

● Capital Gains Tax (CGT)

● Value added tax (VAT)

Please understand that this information is to help you ﬁnd the advice you might need; it is not

intended to be comprehensive, and is not legal or tax advice. We encourage you to check oﬃcial

local guidance, and seek independent advice from a qualiﬁed professional, where you need

support with understanding your tax obligations.

Please note that we do not update this information in real time, so you should always check that

the laws and procedures have not changed recently.

We draw your attention to the fact that Airbnb may have an obligation to report income earned

by users of the platform. Therefore, if there is a mismatch between the information reported by

Airbnb and the income you reported in your annual income tax return, the tax authorities may

ask you questions.

INCOME TAX

If you earn income in the UK, it is likely that you will have to pay tax on this income to Her

Majesty’s Revenue and Customs (HMRC). Below is a brief outline of tax that may arise on

income earned from short-term lettings in the UK, some information on how this tax can be paid

to the HMRC, and where you can ﬁnd more information about this.

The UK’s tax year runs from 6 April to 5 April (e.g., 6 April 2022 to 5 April 2023).

The general deadline for ﬁling an online tax return and paying UK income tax due in respect of

the 2022/2023 tax year is 31 January 2024.

UK Tax Authority contact details

HMRC website: Income Tax: general enquiries - GOV.UK (www.gov.uk)

UK rules applicable to shor t-term rental income

Income from short-term rentals is treated as ordinary rental income, unless it meets the

Furnished Holiday Accommodation (FHA) criteria. More information on the FHA criteria can be

found on the HMRC website here.

Where the FHA criteria are met, the following rules apply:

● There is no restriction on mortgage interest relief (see below).

● The income is treated as earnings, which is required to claim relief for pension

contributions.

● Capital allowances are available for items of furniture, etc.

● There is potential to claim certain CGT reliefs (gift relief, Business Asset Rollover Relief

etc.) which aren't available on normal rental properties.

UK income tax rates

UK income tax is payable on an individual's total earnings in a year, which includes income from

the rental of property. For the 2022/2023 tax year, UK income tax rates were as follows:

● There is a tax free personal allowance available on the ﬁrst £12,570 of income.

● The "basic rate" of taxation (i.e. 20%) is charged on income £0 to £37,700. People with

the standard personal allowance start paying this rate on income over £12,570.

● The "higher rate" of taxation (i.e. 40%) is charged on income between £37,701 to

£150,000. People with the standard personal allowance started paying this rate on

income over £50,270.

● The "additional rate" of taxation (i.e. 45%) is charged on income over £150,000.

The tax free personal allowance of £12,570 is reduced by £1 for every £2 of earnings over

£100,000. This means that an individual's personal allowance is zero if their income is above

£125,140 and, for earnings between £100,000 and £125,140 there is a higher "effective rate" of

tax. A link to the Government page on this is here.

Reporting tax in the UK

A UK income tax return should be ﬁled online using the HMRC website (please see link to the

HMRC website here). In some limited circumstances an individual can still complete a paper tax

return which must then be posted to the appropriate oﬃce. You can ﬁnd details of the oﬃce to

which to send any paper return on the HMRC website.

For complex tax returns, speciﬁc software may be required in order to ﬁle online. If you have any

doubt regarding your taxes, you should consider seeking advice from a professional tax advisor

or accountant to assist in completing your tax return.

Reporting tax - ﬁling deadline

If you are ﬁling a tax return online, the ﬁling deadline is 31 January following the end of the tax

year. For example, the tax return for the period 6 April 2022 to 5 April 2023 will be due for ﬁling

on or by 31 January 2024.

If you are earning property income for the ﬁrst time and do not normally submit a tax return, you

will need to apply to HMRC to register for self-assessment. The registration application for

self-assessment must be made before 5 October following the end of the tax year you ﬁrst start

earning rental income.

Reporting tax - payment deadline

If you are liable to pay tax after ﬁling your income tax return, payment will be due on or by 31

January of the year following the end of the tax year. For example for liabilities arising in the

period 6 April 2022 to 5 April 2023, payment will be due by 31 January 2024. This payment

deadline applies to returns ﬁled online and paper returns.

If your total tax liability for a year is more than £1,000 and less than 80% of the total tax liability

for the year has been collected at source (e.g., collected through PAYE on employment income)

HMRC can also require an additional preliminary payment on account of income tax for the

following year. Payments on account are due on 31 January of the tax year (i.e., at the same

time as your tax liability for the previous year) and 31 July following the end of the tax year. If

you have made payments on account, the ﬁnal tax payment due will be reduced by the payments

on account you have made. This may result in a refund becoming due from HMRC (where the

payments on account that have been made are greater than the tax liability calculated at the end

of the year).

Tax allowances and deductions

There are broadly three methods of deductions you can claim against your property income.

These are set out below.

1- Property Allowance

If your total rental income is below £1,000, you do not have to report the rental income on your

UK tax return. If your property income is above £1,000 but the expenses you have incurred in

relation to the property are below £1,000 you can still claim the £1,000 property allowance

against the property income. This reduces your taxable proﬁt. However, if you choose to use the

£1,000 property allowance you cannot deduct any other expenses from the income. Please see

here for more information.

2 - Rent-A-Room Scheme

There is a separate allowance available where you rent a room in the property in which you

normally reside. If you qualify and your total rental income is below £7,500, then you do not have

to report the rental income on your UK tax return. If the property is jointly owned, then the £7,500

allowance may be reduced to £3,750 if someone else receives income from letting

accommodation in the same property. Similar to the property allowance, if your income is over

the rent-a-room allowance you can still choose to reduce the total income by £7,500 (or £3,750

if let jointly) and pay tax on the difference, rather than reduce your rental income by the actual

expenses incurred. Please see here and here for more information.

3 - Claiming actual expenses

If you do not claim either of the above allowances, you may instead reduce the rental income

received by the actual expenses you incur in relation to your property rental business.

Typical expenses that can be deducted from short-term rental income

Where rental income is received you can deduct costs directly incurred in the provision of the

shor t-term let. This can include, but is not limited to:

● Mor tgage interest*

● Agents fees (e.g. the Airbnb Service Fee)

● Home insurance

● Repairs/redecoration (as long as there has been no capital improvement)

● Any professional fees incurred with the compliance or advice (as long as it is speciﬁcally

incurred in relation to the property rental).

Further information on allowable expenses can be found here.

*For the tax year 2022/2023 mortgage interest will be available only to reduce your tax at the 20%

rate (i.e., if you are a higher or additional rate taxpayer there will be a restriction to the amount of

mor tgage interest tax relief allowable). Please see here for more information.

As mentioned above, if the income from your short-term rental meets the FHA criteria, different

tax rules will apply to the income (including no restriction of the mortgage interest above).

Deductions available for tax depreciation (e.g. capital allowances / wear and tear)

There is no deduction available on standard rental property income for wear and tear,

depreciation or capital allowances.

However, capital allowances are available on FHA properties. The rules around capital

allowances can be complicated, but currently there is a £1,000,000 annual investment

allowance (for assets purchased between 1 January 2019 and 31 March 2023), which provides

relief at 100%. This means that the ﬁrst £1,000,000 of expenses can be deducted from your

rental receipts when calculating the proﬁt. This allowance varies from year to year.

UK income tax obligation for non-UK tax resident individuals

If you are a non-UK tax resident and in receipt of UK rental income, this income falls within the

scope of UK income tax and must be reported to the HMRC.

If you do not apply for the Non-Resident Landlord Scheme (NRLS) the letting agent (or the

tenant if there is no property agent) has an obligation to deduct 20% tax on the rental income

paid to you. You will still need to complete a tax return each year to repor t the income received

and the tax deducted at source on the property. Where you have expenses to set against the

property income you can therefore reclaim tax on the amount of expenses incurred in the year.

If you apply and are accepted onto the NRLS, rent can be received from tenants/agents gross of

tax. A tax return will still need to be completed and tax paid, but you will have a cash ﬂow

advantage of receiving 100% of the rental income at the time it becomes payable.

UK income tax obligations for a UK tax resident individual in receipt of foreign rental income

UK tax residents can be taxed under the arising basis or the remittance basis (depending on

your domicile). If you are taxable under the arising basis (most UK resident, UK domiciled

individuals) you are required to report your worldwide income on your UK tax return. If you also

pay tax on the same rental income in another country (for example the country that the property

is situated) there may be relief from tax in either the UK or the other country under the terms of

the double tax treaty between the UK and that country. This will ensure that tax is not paid twice

on the same income.

If you are non-UK domiciled and able to be taxable under the remittance basis (which you will

generally need to claim on your tax return), overseas income is not taxable or reportable in the

UK as long as it is not remitted to the UK. This is a complex area and you should speak to your

tax advisor for advice around this.

General property taxes payable

Council tax is levied on properties and must be paid to the local council. The amounts are set by

each council and will vary depending on the size and location of the property.

Usually ground rent is payable on property that is owned by leasehold (rather than freehold).

Speciﬁc property taxes payable on properties that are let for short terms

Councils have the discretion to provide a discount of up to 50% on FHA properties. You will need

to contact your council to see whether this is possible.

Capital gains tax in the UK

If you are a UK tax resident you will be subject to CGT on gains made from the sale of property

that has appreciated in value since you bought it. If the completion date of the sale of the

property was on or after 27 October 2021, you must report and pay any CGT due on UK

residential property within 60 days of selling the property.Please see here for more

information on the applicable tax rates and allowances. Please see here for information on

how to report your CGT due and here for more information on how to pay any taxes due.

Any capital improvements that you have made on the property can usually be added to the cost

you paid for the property, along with incidental costs of purchase and the stamp duty land tax

you paid on purchase, when calculating the proﬁt you make on the disposal. This will reduce the

gain that is subject to CGT on sale.

Generally the ﬁrst £12,300 (2022/2023 threshold) of gains in a year are not taxable. For basic

rate taxpayers, any gain above the value of £12,300 following the sale of UK residential property

will be taxable at 18%. For higher rate and additional rate tax payers, CGT is payable on any gain

arising from the sale of UK residential property at 28%.

Please note that relief is available where you dispose of your primary home. Please see here for

more information.

If you are a non-UK tax resident and you are selling a UK property, you must submit a separate

non- resident capital gains tax return. If completion of the sale was on or after 27 October

2021,the deadline for the return is within 60 days of completion of the sale. Payment is also due

within 60 days of completion.

Sample Tax Computation 1

Laura owns a 2 bedroom house. She lets the entire house on a short-term basis.

Laura received total gross rental income in 2022/23 of £12,000.

Laura incurred the following expenses in relation to this house in 2022/23: house

insurance £500, local council tax £350, mortgage interest £5,500 and electricity/gas

£600.

Gross rental income

12,000

Less allowable expenses:

House insurance

(500)

Council tax

(350)

Mor tgage interest*

(5,500)

Electricity/gas

(600)

Net taxable rental income

5,050

*for 2022/23 only basic rate tax relief can be claimed on the whole amount

of any mortgage interest. Therefore if Laura's total income is more than

£50,270 the mortgage interest allowable will be limited.

Sample Tax Computation 2

Laura owns a 2 bedroom house which she lives in alone. She lets one bedroom in the

house each weekend.

Laura received total gross income in 2022/23 of £12,000.

Gross rental income

12,000

Less Rent a Room relief

(7,500)

Net taxable rental income

4,500

VALUE ADDED TAX

VAT can be complicated, and you should take time to understand the rules as they apply to you

and your particular situation.

VAT is a tax chargeable when you supply certain goods and services as a business activity.

Most goods and services supplied in the UK are subject to VAT, which is calculated as a

percentage (the standard rate is 20%) of the amount paid for the goods and services.

If you are supplying a rental property (or a room within a property) to guests, and this property is

located in the UK, you may be required to charge UK VAT on the rental and pay this VAT to

HMRC. This applies even if you are not a UK resident. You should discuss with a tax advisor if

you are unsure about your VAT obligations in the UK.

As you, and not Airbnb, supply the accommodation direct to guests, you, the host, are

responsible for determining whether VAT should be applied to the rental fee you charge guests.

You should ensure you understand your VAT obligations as the supplier of the accommodation

to guests.

Do I need to collect any VAT from guests if I am letting shor t-term accommodation in the UK?

If you supply your accommodation to guests in the UK as part of a business activity you may

need to charge VAT to guests and pay this to HMRC, once you meet the VAT registration

threshold.

If you are established in the UK (i.e., a UK resident, if you are an individual), you are required to

continuous period of twelve months or if you expect that the total value of your taxable supplies

in the next 30 days alone to exceed this threshold. Short-term rental accommodation of a

property located in the UK will generally be a taxable supply and rental income will generally be

included in calculating whether you have exceeded the threshold requiring you to register for

VAT (along with any income from other taxable supplies you make). The UK VAT registration

threshold may be subject to change in the future and you should check on HMRC's website, or

with your tax advisor, for the current threshold.

If you are not established in the UK (i.e., not a UK resident, if you are an individual) there is no

threshold before you need to register for UK VAT. This means you may be required to register for

UK VAT (if you are not already UK VAT registered) when you make your ﬁrst supply of UK

accommodation or if you expect to make such a supply in the next 30 days.

We encourage you to consult a tax advisor if you need assistance in determining whether you

need to register for and charge UK VAT.

Further guidance on registering for VAT can be found on the HMRC website.

VAT applies to me. How do I determine how much VAT I need to collect from my guests?

VAT rates differ in each country and change periodically. We recommend you check on a regular

basis with the local tax authority to get the most up to date VAT rates for the country where you

are required to pay VAT.

As of December 2022, holiday accommodation is subject to the standard rate of VAT in the UK

(currently 20%). Holiday accommodation is any accommodation “advertised or held out as hotel

accommodation or as suitable for holiday or leisure use”.

As a temporary measure in response to the COVID-19 pandemic, the UK government introduced

a reduced rate to holiday accommodation which applied for periods prior to April 2022. This

temporary measure has now ended.

There are special rules for holiday accommodation supplied for more than 28 days. If residential

accommodation is supplied during the off-season for more than 28 days in an area where

holiday trade is clearly seasonal (generally considered to be outside of the period Easter to the

end of September), the entire charge to your guest may be exempt from VAT. Exempt supplies

do not count towards your VAT registration threshold and VAT should not be charged on this

supply. However, you are not entitled to recover any VAT on your costs related to making that

exempt supply. This does not apply in certain areas of the UK that are not regarded as having a

seasonal holiday trade, like London and Edinburgh.

This is a complex area and if you consider that you may fall within this category of rentals, you

should conﬁrm the treatment with your tax adviser.

VAT applies to me. How do I collect VAT from guests?

The price you advertise for the accommodation rental must be VAT inclusive. This means if you

are required to charge VAT and the supply is subject to the standard rate, 1/6th of the total

amount you collect from guests (i.e., 20% of the net amount) is VAT that you must pay to HMRC.

VAT is paid to HMRC by submitting periodic VAT returns and paying the net amount (i.e. VAT on

your sales less VAT on your costs) due to HMRC. You may be able to submit your VAT return on

a monthly, quarterly or annual basis depending on your turnover. You must generally submit VAT

returns online, via a speciﬁc account created with HMRC (often referred to as the ‘Government

Gateway Account’) and using speciﬁc software (as required by the Making Tax Digital for VAT

obligations). The payment has to be made 1 month and 7 days after the return is ﬁled to HMRC's

bank account using details provided by HMRC.

There may be formalities you need to comply with, such as issuing an invoice to your guests.

You can ﬁnd more information here. You will also have to meet certain records requirements,

which generally include keeping records digitally and maintaining digital links between those

records and the VAT returns. We recommend that you check these obligations with your tax

adviser.

Further guidance on ﬁling returns can be found on the HMRC website here. There are additional

VAT schemes available which are designed to simplify the VAT process for small businesses

(e.g., the Flat Rate Scheme), however these are exceptions to the general rules and you should

speak to your local tax adviser to determine if these schemes apply to you.