Running an Airbnb comes with many different responsibilities, one of them being accurately reporting and paying your taxes. However, working out the tax you actually owe can be quite difficult.
As Airbnb accountants, we know a thing or two about the tax treatment of these rental activities. Here’s our guide to understanding your tax liabilities and the potential savings you can make as an Airbnb host.
Taxes when renting out a room on Airbnb
If you’re renting out only a room in a property you’re also living in and earn less than £7,500 a year, then you won’t have to do anything as you will benefit from the Rent-a-Room scheme, which is a tax-free allowance for landlords.
If the property is jointly owned, the allowance is split between each party, giving each of you an allowance of £3,750.
However, you can’t claim expenses on top of the Rent-a-Room scheme (see below), so you might have to do calculations to work out which option is best for you.
Taxes when renting out a property on Airbnb
Generally speaking, any money you earn as a host on Airbnb is considered to be taxable income that may be subject to different taxes, such as income tax, business rates, corporation tax or VAT. Let’s go over each of these in turn so you know which apply to you.
1: Income tax
If the property you host on Airbnb is a second property that you hold in your own name, you can earn up to £1,000 tax-free each year. Any rent over that has to be reported and will potentially be subject to income tax.
Income tax is a progressive tax, which means higher portions of your income are taxed at different rates. UK income tax bands for 2024/25 (excluding Scotland) are as follows.
| Tax band | Income | Tax rate |
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
2: Corporation tax
If you own your property through a limited company, you will have to pay corporation tax instead. For companies with profits above £250,000, the rate to pay is 25%. Those with profits of £50,000 or less pay 19%.
Companies with profits between £50,000 and £250,000 will pay 25%, which they can then reduce by claiming marginal relief to end up with an effective tax rate somewhere between the two headline rates.
3: VAT
All businesses must register for and pay VAT if they have a turnover of £90,000 or more. Registering for VAT will mean you have to apply a tax charge of the service you provide, which you will then pay to HMRC via quarterly VAT returns.
4: Business rates
Business rates are taxes that you must pay for non-commercial properties such as holiday homes or guest houses. They are payable to the local council that has jurisdiction over the area in which the property is located.
If you are letting out your Airbnb property for more than 140 days per year, you may have to pay business rates. This rate is based on the rateable value of your property and its location.
Reducing your Airbnb tax liability
The main way that Airbnb hosts can reduce their tax liability is by claiming their allowable expenses, which are costs related to the day-to-day running of a business. In the context of property, common allowable expenses include:
- letting agent fees
- legal fees
- accountant fees (including TaxScouts)
- rent
- ground rent
- tax relief on your mortgage interest
- gas
- electricity
- water
- service charges
- other utilities.
By claiming these expenses, you deduct their costs from your pre-tax profit, which leaves HMRC a smaller figure to apply tax rates to – leaving you with a smaller tax bill.
Maintaining detailed records of all income and expenses related to your Airbnb property is essential. This includes receipts for repairs, utilities and other expenses. Detailed records make it easier to substantiate your deductions and ensure accurate tax filings.
Need help with your Airbnb taxes?
Tax regulations can be overwhelming but as Airbnb accountants who specialise in property rental taxes, Cottons can help you handle your duties and (hopefully) reduce your tax bill.
We’ll provide personalised advice tailored to your specific situation, ensuring compliance and optimal tax efficiency. Let us help you keep more of your hard-earned revenue and simplify your tax process.
