Thinking of sharing your home - paying tax on UK Airbnb income
Q: I am thinking of letting a spare room in my house via Airbnb. I also live close to the City Centre and am thinking of letting my driveway for daytime parking. What are the tax rules for this kind of income?
A: More and more people, like you, are taking advantage of ‘sharing’ websites to rent rooms and parking facilities to other individuals. This ‘sharing economy’ can generate significant income for those providing such services.
There are currently two tax-free allowances for income generated from the sharing economy – £1,000 per tax year for trading income and another £1,000 per tax year for property income. The property income can be from letting an entire property or just part of it such as a room, loft or garage.
If income from trading or letting property is less than £1,000, there will be no requirement to report this income to HM Revenue & Customs as it will not be subject to income tax. HMRC expects this to be the case for at least half a million individuals.
Where income exceeds £1,000, the excess is taxable and must be reported to HMRC. For example, a taxpayer receives annual income of £3,500 from letting his driveway to a daily commuter. He is entitled to a tax-free allowance of £1,000 on this source of income which gives him additional taxable income of £2,500.
Where an individual lets a furnished room or rooms in their main residence, rent-a-room relief of £7,500 per tax year is available. If rent is within the threshold, there is no need to report it to HMRC as it is not taxable. Where rent is more than this amount, you can calculate your taxable profit either by deducting the exemption or your actual expenses from your income. You will need to ensure that you are living in the property at the same time as your guests for at least some of the letting period.
If the property is jointly owned, then the £7,500 limit is reduced to £3,750.
With the rapid growth of the sharing economy, many individuals in the UK will be required to enter the self-assessment regime, some for the first time, to report their income from this source to HMRC. There are strict deadlines for registering and reporting this additional income.
Remember, as with all things tax, it does pay to seek good professional advice.