Airbnb Hosting vs. Buy-to-Let: Tax and More

Nikka Sulton

Airbnb Hosting vs. Buy-to-Let: Tax and More

Getting into property ownership offers rewards and income potential. Whether it’s a full-time venture or a side hustle, taxes are a consideration. Let’s compare Airbnb hosting with buy-to-let and discuss their tax implications.

What is the difference between an Airbnb host and a buy-to-let landlord?

As an Airbnb host, you can rent out your property for short-term stays, whether it’s full-time or during peak seasons. On the flip side, a landlord who invests in a property for renting typically opts for long-term tenancies. Unlike Airbnb hosts who host a variety of guests, landlords often prefer families or individuals with specific tenancy agreements. Airbnb hosts have minimal control over guests, although they can set rules like no smoking or parties. Landlords, on the other hand, can target particular tenant types, such as young professionals, students, or families.

Are there specific mortgages for Airbnb?

As Airbnb’s popularity has grown, more lenders now offer tailored mortgage products for this type of letting. However, some lenders still exclude Airbnb and similar platforms from their offerings.

Holiday-let mortgages designed for Airbnb rentals are often the best choice, requiring a larger deposit, typically up to 30% of the property’s value, and slightly higher rates due to the variable nature of rental income.

Fixed-rate options exist, with better rates available for those with larger deposits and sufficient pre-tax rental income to cover monthly repayments. Whether buying a property, renting out your home, or converting a buy-to-let into an Airbnb rental, consulting a specialist mortgage broker can help secure the right product with suitable terms. Please note that Alan Boswell Group does not provide mortgage advice.

Airbnb vs renting: pros and cons

Holiday lets can be highly profitable, often earning more in a week than a month-long traditional lease, especially in sought-after tourist spots. However, their success is tied to tourist seasons.

Short-term lets, including those for holidays or business trips, are in high demand, attracting not only vacationers but also digital nomads seeking a more relaxed stay. The turnover of tenants offers a chance to constantly meet new people, providing a flexible approach with easy extensions and personal use options.

Will standard buy-to-let landlord insurance cover me for my Airbnb rental?

Many typical buy-to-let insurance policies don’t include coverage for short-term Airbnb rentals, and they often exclude protection for damage or theft by lawful occupants, like renters and their guests.

If you transition your property from long-term renting to Airbnb or short-term rentals, it’s crucial to notify your insurance provider. Failing to do so could void your policy.

Does Airbnb offer free insurance?

Airbnb offers insurance to property owners, but it has limitations. It covers your liability for guests and damage caused by guests.

However, it’s insufficient. You’ll require additional coverage for loss or damage due to various other incidents like fire, theft, storms, floods, water leaks, as well as public liability and loss of rental income.

Are there tax advantages on an Airbnb let compared to buy-to-let?

Owning a property rented on short-stay holidays through Airbnb has tax advantages over a standard buy-to-let rented under an AST.

Starting April 2020, mortgage tax relief was eliminated for landlords with traditional buy-to-let properties under AST agreements. This means landlords can’t deduct mortgage expenses from their rental income to reduce taxes. Instead, it was replaced by a 20% tax credit, which is less favorable for higher-rate taxpayers compared to the previous 40% tax relief on mortgage payments.

However, the rules differ for short-stay lets. Landlords can still deduct mortgage payments from rental income to reduce taxable profits. They may also qualify for Capital Gains Tax reliefs for traders if their properties are furnished, available for rent for at least 210 days a year, actually let for a minimum of 105 days a year, and each let is no longer than 31 days, excluding free rentals to friends or relatives.

Legal responsibilities

The key distinction between short-term and long-term lets lies in legal responsibilities. Long-term lets come with more regulations, including safety inspections and Right to Rent checks specific to private renting.

Renting out your property, whether short-term or long-term, requires a suitable mortgage or consent to let. Violating mortgage terms by renting without a buy-to-let mortgage can result in severe consequences, including full loan repayment demands and negative credit implications.

It’s crucial to communicate your rental intentions when applying for a mortgage or seek consent to let from your lender to ensure compliance.