Airbnb has completely transformed the property rental market, and short-term lettings and holiday accommodation. Anyone with a spare room can now turn it into a profitable business and can make some serious money in doing so.
However, the idea of earning cash from a room or another property that is doing nothing might seem well and good but there is more to it than that. Sure, it can earn you some quick, easy month but there are tax rules that you have to adhere to and what’s more, you might not be aware of them. The truth is, many people are not aware of them and so, to make sure you stay on the right side of the law, you might want to speak to accountants in Coventry.
Paying Tax on Income from AirBnB
Every person has the right to earn up to £12,500 tax-free but anything over this will be susceptible to tax. Therefore, earnings from AirBnB must be considered and will form part of your calculations when it comes to your tax returns
How Much Tax Will You Need to Pay?
There are several factors to consider here. The first is whether the room is in your own home or if it is part of a separate property. If it is part of your home then you have a tax-free allowance of £7,500 each year. However, if it is a separate property then you will be taxed on any profits above the £12,500 limit of personal income. You will also need to consider any income you receive and depending on your income if you go over the threshold of £85,000 then you will need to pay VAT and that means going VAT registered.
Always remember, HMRC may change tax laws and certain reliefs may become available and may not be available. Always talk to one of our qualified tax accountants in Coventry or at any other branch about updated information.
Are There Any Tax Reliefs?
If you are renting out a property that is not your main home and is considered to be a furnished holiday letting then there are some forms of capital gains tax relief.
This will include the Entrepreneurs Relief whereby you pay a capital gains tax rate of 10% instead of the 28% that you have to pay when it comes to selling your property.
There is also a rollover relief too, and so, if you sell one AirBnB property and purchase another, you can defer capital gains tax on the sale of the initial property. This prevents you from paying the tax there and then.
There are capital allowances in place for furniture and fittings also.
However, HMRC is looking to make changes to its income tax rent a room relief and so, it will keep the current levels which stands at £7,500 each year. If you do choose to rent a room, then you must be present at some or all of the time that you rent it. This is to prevent homeowners from renting their properties at times when large events take place, which means that they could take advantage of the relief.
So, if you have any queries around AirBnB and your income, then it is always worth seeking the right advice from accountants in Coventry.