Homeowners who rent out a spare room on Airbnb reportedly face a big tax bill.
The 2017 Budget said suspiciously little about the UK property market. Only when the dust had settled, DMZ notes that up to 52,000 Airbnb hosts around Britain could face an increase in tax of between £400 and £3,300 a year if the Government decides to scrap rent-a-room relief for short term lettings.
Airbnb users in London can look to make on average £3,500 a year (UK average is £2,000). This could all change following a paragraph buried in Wednesday’s Budget document suggesting the “rent-a-room” taxbreak would be removed for short-term letting.
Of Airbnb’s 52,000 hosts an unknown proportion rent out their entire properties via the site. They would already be taxed on the profits. However, tens of thousands of users who rent out only rooms would be entitled to the £7,500-a-year tax perk.
If the perk is scrapped, higher-rate taxpaying hosts would be hit with a sudden £800 tax bill, based on the average £2,000 earning across the country.
However, if this change does go ahead, there is a strategy that AirBnB hosts could look to take. An Airbnb host could look to offset their earnings with a proportion of your household expenses, such as utilities and mortgage interest (not including any capital repayment). The proportion of any expenses claimed must be “just and reasonable”.
For example, if you lived in a house with six rooms and rented out one all year you could divide your bills and mortgage interest by six. With bills totalling £1,250 a year you could deduct £208. If your mortgage interest was £139 a month, you could take a sixth of this and claim another £278.
Hence £5,000 income from letting a room could be reduced to £4,514 for tax purposes.
Patricia Mock, Director at Deloitte, the accountancy firm said: “If rent-a-room relief is abolished, those renting rooms 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”.
An Airbnb spokesman said hosts “want to pay their fair share of tax” and it wants to help.
He said the platform reminds hosts to “check and follow tax rules, sends email reminders during tax season and has downloadable transaction histories for hosts.”
Sally Walmsley, of the Residential Landlords Association said, “as rent-a-room (tax relief) 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.”
“No timescale for the consultation or review has been set, but measures could be announced in the autumn budget, to take effect as soon as next year.”
Research for The Negotiator by consultancy Airdna reveals that, in London, the number of properties listed to rent out via Airbnb has risen from 22,945 in January 2015 to over 60,214 today, an increase of 162%.
Airdna also says Airbnb properties have an average occupancy rate of 60% and that average revenues for hosts in London are all under the Rent-a-Room threshold.
For example, the average rent for a two-bedroom flat in London offered via Airbnb has increased over the past two years by 23% from £3,445 to £4,248, way ahead of the traditional longer-term let market.
Hotels have also accused the government of allowing Airbnb to benefit from generous tax policies that give it an edge in attracting tourists.
Hotels have to pay high business rates and charge VAT on stays, while property-owners who rent out rooms through Airbnb receive tax breaks, such as the rent-a-room relief, that help to make its accommodation cheaper.
It’s important for all DMZ‘ers to remember that Chancellor Philip Hammond had already announced that this would be his last spring Budget and that the main event will be in the autumn.
We hope the Government will address the ever-controversial stamp duty tax which has hit London’s Property market and had a negative knock-on effect on associated real estate companies in the Capital. DMZ will use our own data on the London market to highlight potential changes that could be made to retain the Government’s total income from SDLT, but in a fairer way. We hope to highlight the crushing impact of the tax in London, proposing amendments that would benefit the broader UK economy.