Is rent-a-room relief available for ‘Airbnb-type’ lets?

Sarah Bradford explores looks at rent-a-room relief and its possible application in relation to Airbnb-type lets. 

 

Letting living accommodation on a temporary basis through sites such as Airbnb is a popular way to raise additional cash – and the availability of rent-a-room relief means that it is possible to enjoy this additional source of income tax-free in many cases. 

 

For a while, it looked as if this tax bubble was about to burst as the government sought to introduce amendments to the rent-a-room legislation to target what they perceived as an abuse of the rules.  

 

Following concerns that the relief was not being used for its intended purpose - namely that of boosting the supply of cheap low-cost living accommodation - a call for evidence was launched in 2017 to find out how the relief was used in practice and whether it was achieving its intended aims. In July 2018, the government published a response to the call for evidence, together with details of proposed reforms, which were to have come into effect from 6 April 2019.  

 

Under the planned reforms, a new shared occupancy test was to have applied from 6 April 2019, which would have required the taxpayer (or a member of his family or household) to be living in the residence and physically present for at least some part of the rental period for rent-a-room relief to be available. Legislation was published in draft for consultation.  

 

However, it was announced at the time of the Budget in Autumn 2018 that the government had dropped the plans to introduce the shared occupancy test. This was welcome news to those letting accommodation on a short-term basis through sites such as Airbnb. Consequently, in most cases as long as the associated conditions are met, hosts can continue to enjoy rental income of up to £7,500 tax-free under the rent-a-room scheme.  

 

Rent-a-room relief is a tax relief that allows individuals to earn up to £7,500 per year tax-free from letting out furnished accommodation in their own home. This limit is halved where more than one person benefits from the income, such that each person can enjoy rental income of up to £3,750 per year tax-free.  

 

The relief is available to owner-occupiers and tenants. To qualify, the rental income must relate to the letting of furnished accommodation in the individual’s only or main home. While the relief was introduced to boost the supply of cheap residential accommodation, there is no minimum period of let, and it applies equally to very short lets. Further, the individual can let out as much of their home as they want.  

 

The relief can be used where a room is let furnished to a lodger. It can also be used where the letting amounts to a trade, for example, where the individual runs a guest house or a bed-and-breakfast or provides services such as meals and cleaning.  

 

Where rental income is less than £7,500 (or £3,750 where the income is shared), the relief is automatic – there is no need to tell HMRC. Rent-a-room relief is not available where the accommodation is not in the individual’s main home, where accommodation is provided unfurnished or where a UK home is let out while the owner is working abroad.  

 

Where the gross rental income exceeds the rental income, the individual has a choice of deducting the rent-a-room limit and paying tax on the excess or calculating the profits in the normal way by deducting the actual expenses.  

 

Using rent-a-room relief will be beneficial if there is a profit and actual expenses are less than the rent-a-room limit. This is done on the tax return. In the absence of a claim, HMRC will automatically work out the relief by deducting actual expenses from rental income. The claim must be made within one year of the 31 January following the end of the tax year to which the claim relates (i.e. by the first anniversary of the self-assessment deadline for that tax year). The taxpayer can move in and out of rent-a-room relief by notifying HMRC within this time limit – thus a decision can be made each year depending which method gives the best result. 

 

It is not possible to create a loss by deducting the rent-a-room limit if, for example, rental income is less than the limit, the income is simply treated as being nil. Where deducting actual expenses from rental income produces a loss, it is better not to claim rent-a-room relief to preserve the loss.  

 

Rent-a-room relief is available for Airbnb-type accommodation, as long as the associated conditions are met.  

 

The issue is not whether the income is from an Airbnb-type let; rather, whether the conditions for rent-a-room relief are met. This is likely to be the case if the nature of the Airbnb let is such that it comprises the let of a furnished spare room in the taxpayer’s home, or the whole home for a short period, such as a weekend or a couple of weeks when the homeowner is on holiday. 

 

Julia lives near a major sporting venue. To take advantage of this, and to receive some additional money, she lets out her spare room on a short-term basis. She usually makes around £3,000 a year from the lets. 

As the accommodation is in her main residence and is let furnished, she is able to take advantage of rent-a-room and enjoy the income tax-free. As the income is less than the rent-a-room limit of £7,500, the relief applies automatically. 

 

Peggy and Peter live in Cornwall. They rent a property in France for two months each summer. While they are away, they let their Cornwall property via Airbnb. Lets are typically for one or two weeks. The property is let for £1,000 a week. During the course of the summer, they receive total income of £8,000, which is shared equally. 

As they receive the income jointly, Peter and Peggy are each entitled to tax-free income under the rent-a-room scheme of £3,750 each. The scheme is available as the lets comprise the let of furnished accommodation in their main residence. 

As the expenses associated with the lets are less than the rent-a-room limit, it is beneficial to claim rent-a-room relief. Peggy and Peter are each taxed on their share of the rental income to the extent that it exceeds the rent-a-room limit of £3,750. Thus, they are both taxed on a rental profit of £250 (£4,000 - £3,750) in respect of the let of their home via Airbnb. 

 

However, where the individual uses Airbnb or similar to let accommodation in a property which is not his or her main home (e.g. a holiday cottage), rent-a-room relief is not available, and the normal property rental rules apply. The individual may, however, benefit from the property income allowance of £1,000. 

 

Angela has a holiday cottage in Norfolk. The cottage is mainly used by her family and friends, but to make a bit of extra income she lets it out for a few weeks a year on Airbnb. She typically receives rental income from the lets of around £5,000. 

Although the accommodation is let furnished and the income received is below the rent-a-room threshold, rent-a-room relief is not available as the accommodation is not in Angela’s main residence. 

However, she can choose whether to claim the property allowance of £1,000. This will be beneficial if the associated expenses are less than £1,000. If they are, she only needs pay tax on the profit in excess of the £1,000 property income allowance – in this case, £4,000. 

 

HMRC produce a helpsheet (HS223) on rent-a-room relief. The helpsheet, is available on the Gov.uk website at www.gov.uk/government/publications/rent-a-room-for-traders-hs223-self-assessment-helpsheet.  

 

The helpsheet explains when rent-a-room relief can be claimed and when it cannot, and the time limits for claiming the relief. 

When letting property on a short-term basis through sites such as Airbnb, check whether the conditions for rent-a-room relief are met. If they are, consider whether it is beneficial to claim the relief.