Do You Pay Tax on Airbnb Income in the UK?

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Yes, income from hosting on Airbnb is taxable in the UK, just like any other income. The amount of tax you owe and the specific allowances or benefits you might qualify for depend on several factors.

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Your tax liability can vary based on how much you earn through Airbnb, whether the property is furnished, and whether you're renting out part of your main residence or a property where you don't live.

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What Taxes Do You Pay on Airbnb Income?

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If you're thinking about hosting on Airbnb, it's essential to understand the various taxes that may apply to you:

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• Income Tax
• Corporation Tax
• VAT (Value Added Tax)
• Council Tax
• Business Rates
• Capital Gains Tax

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Income Tax

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Income Tax in the UK works on the principle that every individual aged 18 or over can earn a certain amount of income each year before they need to pay tax. This threshold is known as the "Personal Allowance," which for the tax year 2022/23 was set at £12,570.

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Any income you earn beyond this allowance is subject to taxation, including profits from renting a room or property on Airbnb. It's important to note that all sources of income are aggregated together; if you're also employed, your Airbnb profits will be combined with your earnings, and you'll be taxed on the total income exceeding the £12,570 threshold.

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If your Airbnb earnings push you above the Personal Allowance, you're required to declare this income on a Self Assessment tax return and settle any applicable taxes. This applies to all earnings outside of PAYE (Pay As You Earn).

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Your total earnings and applicable tax rate determine the amount of income tax you owe.

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Corporation Tax

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If you operate on Airbnb through a limited company rather than as an individual host, you will be subject to Corporation Tax on the profits you earn from your Airbnb income instead of Income Tax.

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Currently, the standard Corporation Tax rate is 19%. However, changes are slated for the 2023/24 tax year, where the rates will vary based on your taxable profits:

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• Profits over £250,000 will incur a Corporation Tax rate of 25%.
• For profits between £50,000 and £250,000, there's a sliding scale starting at 19% and increasing up to 26.5%, benefiting from marginal relief.
• Companies with profits below £50,000 will continue to pay the 19% Corporation Tax rate.

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These rates determine how much Corporation Tax you must pay based on the profit your limited company generates from Airbnb activities.

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VAT (Value Added Tax)

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In the UK, rental income from residential properties is typically exempt from VAT. However, the rules differ for Airbnb lettings. Airbnb lets are classified as holiday accommodation, similar to hotels, which means VAT is applicable at the standard rate of 20%.

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If your Airbnb income surpasses the VAT threshold, currently set at £85,000 for the 2022/23 tax year, you have several options regarding VAT:

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• You can include VAT in the price you charge guests.
• You can absorb the VAT cost yourself.
• You can adjust your prices slightly to share the VAT cost with your guests.

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However, these considerations only apply if your total Airbnb income exceeds the VAT threshold. If it does, you must register for VAT and regularly submit VAT returns to HMRC.

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Council Tax

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If you rent out your Airbnb property for fewer than 140 days a year, you'll be required to pay Council Tax.

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Council Tax is an annual charge levied by local councils to fund various services, such as:

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• Environmental health and trading standards
• Maintenance of parks and sports centres
• Police and fire services
• Rubbish collection and disposal
• Transport and highway services, including street cleaning and road maintenance

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The amount of Council Tax you owe is determined locally and is based on the valuation band of your property, as well as the funding needs of your local council. While Council Tax is an annual fee, it's typically paid in ten monthly instalments.

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Business Rates

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If you rent out your Airbnb property for 140 days or more annually, you may need to pay Business Rates instead of Council Tax. The specifics vary depending on where your property is located within the UK:

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• England: Your property will typically be classified as self-catering accommodation and thus subject to Business Rates.
• Scotland: Whether your property is subject to Business Rates depends on factors such as its size, type, and location.
• Wales: Properties let for 70 days or more annually are subject to Business Rates.

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If you own a bed and breakfast (B&B) or a guesthouse that accommodates more than six people simultaneously, you will also be liable to pay Business Rates.

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Capital Gains Tax

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Capital Gains Tax is applicable to the profit you earn from selling assets, including properties used for Airbnb or multiple rented rooms in your home.

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Here’s how it works:

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• Capital Gains Tax is triggered upon the sale of your property, not during the rental period.
• The amount of tax you pay depends on the profit ("gains") you make and your income tax rate.
• If you are a basic rate taxpayer, you'll pay 18% on gains within the basic Income Tax band. For any amount above this, the rate increases to 28%.
• Higher and additional rate taxpayers are subject to a flat rate of 28% on all gains from property sales.

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It’s important to keep records of any improvements made to the property, as these can reduce your tax liability through what’s called "Entrepreneurs' Relief."

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Conclusion 

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Income from Airbnb hosting is treated like any other form of income in the UK, which means it is subject to taxation. The specific taxes you owe and the amount you pay depend on several factors:

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• The total amount of income you earn from Airbnb hosting.
• Whether the property you're renting out is furnished.
• Whether you are letting accommodation within your primary residence or a property where you do not reside.

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These factors influence which taxes apply to your Airbnb income and the corresponding tax rates. It's important to understand these implications to ensure compliance with UK tax regulations.