Airbnb VS BTL
Airbnb hosts and buy-to-let (BTL) landlords may outwardly appear to offer the same service but there are notable differences, particularly when it comes to taxation.
Whereas Airbnb hosts rent properties to holidaying guests on a short and long-term basis, BTL landlords typically lease properties for long-term residential purposes only. Of course, BTL properties are secured with the express intention of renting them out, usually as a source of alternative income (or a primary source of income where property portfolios are concerned).
Assuming you have a property that you don’t intend to live in, you have two options:
- Become an Airbnb host
- Become a BTL landlord
Each solution has its own sets of pros and cons, taxation included.
For instance, for Airbnb hosts, it’s not so easy to vet the people who stay in your property. This is because the total number of guests is cumulatively greater compared to that of tenants who stay in a rented home. Nevertheless, Airbnb hosts are able to stipulate certain rules, such as no smoking, no pets, no parties, etc.
Landlords, on the other hand, can target and secure a particular demographic, such as professionals who meet a certain income criteria (and are less likely to default).
As has long been the case with buy-to-let landlords, Airbnb hosts are now expected to notify His Majesty’s Revenue & Customs of any profits made over the value of £1,000. Indeed, reports state that Airbnb has been obliged to share user data with HMRC as part of a crackdown on hosts that have not been declaring their income.
Are Airbnb and buy-to-let the same?
As discussed, there are many similarities between Airbnb and BTL.
For instance, they both…
- Involve the renting out of a property (or properties) for income
- Are subject to regulations and responsibilities laid down by UK housing law
- Have tax implications
However, while comparable, there are significant differences. Mainly, this is down to a contrast in rental durations and management styles – but also taxation rules.
BTL, Airbnb, HMRC and Tax
Airbnb hosts are required to declare any property (and any other self-employed income) that exceeds the £1,000 tax-free trading allowance. Let’s look at some examples.
Scenario 1
While holidaying elsewhere, you rent your property to a guest for 14 nights at £65 per night. This provides you with a total return of £910. Since this is below the aforementioned £1,000 threshold, there’s no need to inform HMRC or pay any tax.
Scenario 2
You rent your property to a variety of guests for four months every year – let’s say a maximum of 120 nights at £65 per night. This yields £7,800, which is clearly above the £1,000 threshold. As such, you need to inform HMRC and pay tax on the profit made over the £1,000 allowance, so on £6,800.
In Scenario 2, you’ll be required to declare your rental income while registering for Self Assessment tax returns, the deadline for which is 5 October (following the end of the relevant tax year).
The majority of self-employed people are entitled to a Personal Allowance of £12,570 – if this is exceeded, normal income tax rules apply.
Please note that tax is based on the profits you make, not your net income.
How to Minimise Your Tax Bill
AIRBNB HOSTS
When completing your Self-Assessment, you’ll be able to claim either your trading allowance or your expenses. The best option will depend on whether or not you exceed the £1,000 trading allowance threshold. For example, if your expenses are lower than £1,000, you’ll enjoy a bigger tax bill reduction if you claim the allowance.
You should consider, too, the possibility of claiming tax relief on general maintenance and repairs (but not improvements), utility bills, council tax, cleaning services, mortgage interest, etc.
It’s worth noting that as an Airbnb host, you may be entitled to rent a room in your home – and net up to £7,500 worth of tax-free income.
Incidentally, despite what some may think, an Airbnb host (or a BTL landlord, for that matter) isn’t self-employed. The amount of tax you pay will depend entirely on how much profit you make. This is of course assuming you aren’t already self-employed as a freelancer, consultant or such forth.
If you would like to know more about how Airbnb UK regulations impact taxation, feel free to contact us.
BUY-TO-LET LANDLORDS
The amount of tax you need to pay is based on profits made from renting a property minus any expenses or allowances to which you’re entitled.
For BTL landlords, mortgage payments are not tax deductible (which isn’t the case with Airbnb properties), although you won’t be required to pay VAT on a BTL property.
Profit up to and including £1,000 is designated a tax-free allowance on property and trading income. As with a trading allowance, you’ll need to report any taxable rental profits to HMRC if the £1,000 threshold is exceeded, in which case, you’ll have two options:
- If your income doesn’t exceed £2,500 – If this is the case and you typically don’t complete a Self-Assessment tax return, you can contact HMRC and inform them of your property-related income
- Your income exceeds£2,500 – You will need to complete and submit a Self-Assessment return
If you have any BTL regulation and tax enquiries that aren’t covered here, please contact Ibiss & Co and a member of our team will be able to help.
A quick recap
- Owners of Airbnb and BTL properties are afforded an initial £1,000 tax-free allowance.
- Some Airbnbs are eligible for the government-incentivised Rent a Room Scheme, which enables an additional £7,500 tax-free income.
- Airbnb hosts are allowed to claim tax relief on mortgage interest payments – this is in addition to regular maintenance fees.
It’s also worth noting that whereas BTL properties are exempt from VAT, Airbnb UK regulations stipulate that properties are subject to an £85,000 VAT threshold.
Get in touch with our BTL tax advisers
Here at Ibiss & Co, we’re an award-winning, highly experienced team of tax advisers and accountants. Some of our experts are former HMRC inspectors, meaning we can help you to comply with BTL and Airbnb HMRC requirements without overpaying tax.
Whether you’re an Airbnb host or a buy-to-let landlord, there’s every chance you’ll require tax advice at some point or another. If you have any questions, please don’t hesitate to get in touch with our friendly, courteous and knowledgeable offices in Barking, Tooting or Walsall. We’re available by phone, email and online contact form.
