Many websites urge property owners to start earning from their home or spare room – but what they don’t always mention is that HMRC may want a piece of the action. Income from short-term property letting will likely need to be included in the calculation of your taxable income, although there are some occasions where property-specific tax reliefs may apply.
Clayton & Brewill outlines the various property tax reliefs you may be entitled to and the importance of complying with HMRC when it comes to short-term holiday letting.
Tax rules for holiday lettings
At the commercial end of the spectrum, bespoke tax rules exist for furnished holiday lettings, which serve to treat letting income as trading income. This can bring a number of tax advantages.
For example, loan interest to buy or improve a property is eligible for tax relief, and the income can be treated as relevant earnings for the purposes of personal pension payments. But to access this regime, strict qualifying criteria apply. These include a minimum period of availability to the public each year and a minimum period of actual letting.
Short-term property letting allowance
At the opposite end of the spectrum is the property allowance. The property allowance minimises the compliance burden for low levels of letting income – for example where a room, or perhaps parking space on the family driveway, is let out very occasionally.
The allowance is £1,000 each year. Usually, where gross property income is £1,000 or less, it is not necessary to report such income to HMRC. However, where property income is more than £1,000, HMRC requires notification.
The property allowance is not available where properties are held through a partnership or in a company. If a property is held jointly (but not through a partnership) then each taxpayer has their own property allowance.
Many taxpayers are likely to need to complete a tax return to account for other income. It is also necessary to keep records of the property income against which the property allowance is set. If you need any assistance with this, please get in touch with the Clayton & Brewill team; we would be happy to help.
Rent a Room Scheme
The Rent a Room Scheme is another scheme designed to ease the admin burden for lower levels of income. Differing to the property allows, it exempts the first £7,500 of rent each year from a lodger if they are residing in your only home, or a family home – and £3,750 will be exempt where rent is shared jointly. It can also be used for trading income from guest houses or bed and breakfast establishments.
Where income is less than £7,500, there is no need to complete a tax return.
HMRC is currently writing to some taxpayers where it has reason to believe that they have earned income from short-term property letting, not disclosed it to HMRC, and may need to pay tax. This includes earnings from using property sites like Airbnb, Booking.com, VRBO and Holiday Lettings.
The letters are meant to nudge taxpayers to review their tax position and put right any mistakes which might have been made. If you get one, it will ask you to complete a Certificate of Tax Position within 30 days and tick a box to say either that there is no income to disclose, or that there is. If there is, HMRC asks recipients to use its online Digital Disclosure Service. It stresses that failure to respond to the letter may trigger an enquiry into someone’s tax affairs.
Short-term property letting: how we can help
Should you receive such a letter, please discuss the position with us before any action is taken – and pay attention to the deadline specified. Serious consequences can occur if HMRC determine that a false declaration has been made on a Certificate of Tax Position, and there may be a more appropriate means to make any disclosure necessary.
Clayton & Brewill has plenty of experience in handling these matters. We can help you take stock and discuss the best route to take.