Section 24 Tax Guide for Airbnb Hosts. Renting out your property as a holiday let can be extremely advantageous, financially. However, it’s essential to be aware of the tax implications, including the impact of Section 24, when it comes to your Airbnb rental property. With this in mind, we’re here to provide you with all the necessary information regarding tax and an Airbnb holiday let.
What are the tax implications of letting your property within your main residence and what if you let another property where you don’t live? Are you entitled for rent-a-room scheme in a rented property? How will that affect your taxes, deductions, and other finances? How we benefit maximum from this is what we all want to know, and tax on Airbnb income in the UK is one amongst many that bothers.
In recent years, Airbnb hosting has gained immense popularity with an increasing number of landlords in and outside London using Airbnb as a platform to let their property, let another property, and own a house. This popularity has influenced people to seek detailed guidelines about tax on Airbnb hosting income. Here, the main tax provisions applicable to Airbnb income will be outlined.
What is Section 24 for landlords or hosts?
Section 24 represents a UK tax law update affecting landlords. Under these changes, landlords can no longer deduct mortgage interest and associated costs, like mortgage arrangement fees, from their rental income before determining their tax liability.
This is a significant shift as deducting allowable expenses from income traditionally reduced the taxable amount, thereby lowering the overall tax bill.
Do Section 24 tax rules apply to Airbnb?
Many Airbnb hosts are circumventing the Section 24 interest relief restriction by qualifying their properties as Furnished Holiday Lets (FHLs), as previously mentioned. Section 24 applies to properties not meeting the FHL criteria. This restriction essentially limits the ability of higher-rate taxpayers to claim full relief on their mortgage interest.
Consequently, a growing number of individuals are opting to transition from traditional long-term rentals to Airbnb, attracted by the prospect of higher income and reduced tax obligations.
Effect of Section 24 on Airbnb (restriction on tax relief on interest)
Many Airbnb hosts can benefit from Furnished Holiday Lettings, escaping the Section 24 interest claims restriction. However, if your property doesn’t qualify for Furnished Holiday Letting, Section 24 will still apply, limiting mortgage interest relief for higher tax bracket individuals.
For buy-to-let landlords, transitioning to Airbnb can be financially rewarding due to increased income and potential tax advantages.
Extra reliefs from capital gains tax for Airbnb Landlords
Section 24 represents a significant shift in UK tax laws for landlords, altering how tax liabilities are determined. This change eliminates the ability to deduct expenses like mortgage interest from rental income before calculating taxes, potentially increasing tax bills. However, an intriguing exception exists for some Airbnb landlords who qualify for Furnished Holiday Lettings (FHL) status. For those meeting the FHL criteria, Section 24’s restrictions on interest claims may not apply, offering a potential workaround to mitigate the impact of this tax change. This shift towards FHL and Airbnb hosting could not only boost income but also provide a strategy to navigate Section 24’s challenges more favorably. It’s crucial to seek professional advice to make informed decisions in this evolving tax landscape.
Point of Advice to Landlords in London
As per the Greater London Council (General Powers) Act 1973, the use of residential properties for temporary accommodation, specifically for sleeping purposes lasting less than 90 consecutive nights, is considered a change in use across all 32 London regions, necessitating planning permission. However, it’s noteworthy that the UK Government has chosen to maintain this regulation within the Deregulation Act 2015, a move seen as fostering Airbnb-style short-term lettings. This new rule allows property owners to rent out their properties for up to 90 days in a financial year without contravening this regulation. Airbnb automatically enforces this 90-day limit on property listings. You can find more detailed information regarding this regulation on both the Airbnb website and the UK Government website. In terms of taxation, failing to genuinely let your property for a minimum of 105 days, with at least 210 days of availability, means you won’t qualify for Furnished Holiday Letting (FHL) status and its associated tax benefits. Therefore, obtaining planning permissions is a crucial step to become eligible for FHL and access these tax advantages.
What about Capital Gains Tax for Airbnb hosts?
If your property qualifies as a Furnished Holiday Let and you don’t occupy it full-time, you can benefit from Capital Gains Tax relief, which encompasses several advantages:
1. A reduced Capital Gains Tax rate of 10% instead of the standard 28% when selling the property under the Business Asset Disposal Relief scheme, formerly known as Entrepreneurs’ Relief.
2. Access to capital allowances for property fixtures, fittings, and furniture, potentially reducing your overall tax liability.
3. Utilizing the Gift Hold-Over Relief scheme, allowing you to avoid immediate Capital Gains Tax payment when selling or gifting business assets below their market value, benefiting both you and the buyer.
4. The opportunity to defer Capital Gains Tax liability when selling one Airbnb property and acquiring another through the Rollover Relief scheme, provides flexibility and potential tax savings.