With the dramatic rise in popularity of Airbnb, many people are deciding to rent out their spare rooms to provide an additional source of income. It can be a relatively easy way to make money, but it’s important to bear in mind that income levels can be inconsistent and this must be taken into account. In addition, as with any income-generating scheme, there are tax obligations to be considered prior to getting started.
Here, Alex Skinner from Perrys Chartered Accountants provides six points to think about on the financial front before you take the plunge:
- HMRC’s Rent a Room Scheme allows you to earn up to a maximum of £7,500 per year tax-free if you’re letting out accommodation in your home. If the dwelling is jointly owned you would get £3,750 each. i.e. £7,500 in total.
- If you earn less than this amount you don’t have to notify HMRC as the tax exemption will be automatic, but if you go over it then you must fill in a tax return and opt in to the scheme to be able to claim your tax-free allowance.
- If your gross rental receipts are more than £7,500 you can either:
- Pay tax on your actual profit (total receipts less any expenses and capital allowances).
- Pay tax on your gross receipts that are in excess of the £7,500 relief.
As you can choose between the two, it is important to use the most tax efficient method for you each year.
- In order to join the scheme you have to be resident at the property, whether you own it or not. If you are intending to rent out the whole property then this scheme won’t apply.
- The accommodation you are letting out has to be furnished, and it must be a part of your main property. For example, it could be the top floor of your house, but a self-contained flat would not apply.
- UK Airbnb hosts can receive a £1,000 tax-free allowance on income earned from their property. However, you can’t claim this as well as Rent a Room tax relief, so you’ll need to check which gives you the best return.
Welcoming guests into your home can be an exciting and rewarding experience, but it’s important to establish your financial position from the outset, therefore always seeks the advice of a professional before making any commitments.