Airbnb’s popularity has grown rapidly since it was launched in 2007. In recent years it has become the first port of call for many holidaymakers looking for affordable accommodation in prime locations.
According to the latest statistics, the platform currently has more than 150 million guest users, six million active listings, and four million hosts worldwide. And these numbers are continuing to grow.
Whether you have a rental property sitting vacant or you want to make a bit of extra cash from letting out your spare room, you may be considering becoming an Airbnb host. But before you do, it is important to make sure you fully understand the Airbnb tax rules.
When it comes to Airbnb tax, it pays to be proactive. Otherwise, you could face penalties down the line. In this guide, we’ll explain what taxes you might have to pay as an Airbnb host and which tax-free allowances and benefits you could be entitled to.
Income from Airbnb hosting is the same as any other income, which means it is taxable in the UK. However, which Airbnb taxes you owe and how much you pay depends on what tax-free allowances and tax benefits you qualify for.
You will be taxed differently depending on how much you make in Airbnb income, whether the property is furnished and if you’re renting accommodation within your main residence or you’re letting out a property you don’t live in.
Continue reading to find out more about which Airbnb taxes you might have to pay, how much you owe and whether you could be entitled to any allowances.
If you are considering becoming an Airbnb host, there are several taxes you need to be aware of:
To help you determine which ones apply to you, we’ve provided information on each of these taxes in the below sections.
In the UK, every person over the age of 18 is entitled to receive income over a certain amount each year without paying tax on it. This is called a “Personal Allowance”, and it is set at £12,570 for the 2022/23 tax year. Any income — including profit you make from renting out a room or property on Airbnb — over this amount is taxable.
Note that all of your sources of income are added together, so if you are employed, your Airbnb profit will be added to your earnings and you will be taxed on anything you make over the £12,570 threshold.
If your Airbnb income takes you over the Personal Allowance, you are responsible for declaring this on a Self Assessment tax return and paying the relevant taxes. You must do this for all non-PAYE earnings.
How much Income Tax you have to pay depends on how much you earn and your tax rate. The tax rates for 2022/23 are as follows:
2022/23 Income Tax bands for England, Wales and Northern Ireland
|Tax band||Taxable income||Tax rate|
|Personal Allowance||Up to £12,570||0%|
|Basic Rate||£12,571 and £50,270||20%|
|Higher Rate||£50,271 to £150,000||40%|
|Additional Rate||More than £150,000||45%|
2022/23 Income Tax bands for Scotland
|Tax band||Taxable income||Tax rate|
|Personal Allowance||Up to £12,570||0%|
|Starter rate||£12,571 to £14,732||19%|
|Basic rate||£14,733 to £25,688||20%|
|Intermediate rate||£25,689 to £43,662||21%|
|Higher rate||£43,663 to £150,000||41%|
|Top rate||more than £150,000||46%|
If you have joined Airbnb as a limited company rather than an individual host, you will be charged Corporation Tax, instead of Income Tax, on the profit you make from your Airbnb income.
Currently, the Corporation Tax rate is 19 per cent, however, this is changing for the tax year 23/24 and how much Corporation Tax you have to pay depends on how much profit you make:
- If your taxable profits are more than £250,000, you will pay a Corporation Tax rate of 25 per cent.
- If your taxable profits are between £50,000 and £250,000, you will pay a rate of 26.5 per cent with the benefit of marginal relief. This means the Corporation Tax rate you will be charged will gradually increase depending on what your profits are, allowing you to reduce your rate from the 25 per cent main rate.
- Limited companies that make profits of less than £250,000 will continue to pay the 19 per cent Corporation Tax rate.
2021 to 2023 Corporation Tax rates
|Upper limit (profits more than £250,000)||19%||19%||25%|
|Marginal rate (profits £50,000 to £250,000)||19%||19%||26.5%|
|Lower limit (profits less than £50,000)||19%||19%||19%|
In the UK, residential rental income is exempt from VAT. However, it is important to know that the rules are different for Airbnb letting. Airbnb lets are classed as holiday accommodation, which means that, like hotels, VAT is charged at the standard 20 per cent rate. You can either add this on top of the price you charge your guests, pay the VAT yourself, or split the cost between you and your guests by slightly raising your prices. Note, though, that this is only if your total Airbnb income exceeds the VAT threshold, which is £85,000 for the 2022/23 tax year.
If your Airbnb income exceeds £85,000, you will need to register for VAT and file regular tax returns to HMRC.
If your Airbnb property is available to let for less than 140 days a year, you will need to pay Council Tax.
Council Tax is a tax that’s charged annually to pay for the services your local council provides. Some examples of these services are:
- Environmental health and trading standards
- Leisure and recreation projects, including the maintenance of parks and sports centres
- Police and fire services
- Rubbish collection and disposal
- Transport and highway services, including street cleaning, street lighting and road maintenance
How much Council Tax you owe is determined locally, as it is calculated according to how much the council needs to fund its services, as well as your property’s valuation band.
While Council Tax is an annual fee, you can usually pay it in ten monthly instalments.
If your Airbnb property is available to let for 140 days or more a year, you may have to pay Business Rates instead of Council Tax, but the rules differ depending on where your property is in the UK:
- England — Your property will be classified as self-catering and therefore subject to Business Rates
- Scotland — Your property may be subject to Business Rates, depending on its size, type and location
- Wales — If you let your property for 70 days, it will be subject to Business Rates
You will also be subject to Business Rates if you own a B&B or guesthouse that caters to more than six people at a time.
Capital Gains Tax
Capital Gains Tax is a tax that’s charged on the profit you make from selling something. This means that if you’ve rented out multiple rooms in your home and you are selling it, or you are selling a property that you’ve used as an Airbnb, you will be subject to Capital Gains Tax.
Capital Gains Tax only applies when you sell your property, and you will be charged according to the “gains” made and whether you pay basic or higher rate Income Tax.
If you are a basic rate taxpayer, the rate you pay depends on the size of your gain and your taxable income. If your taxable income is within the basic Income Tax band, you will pay 18 per cent tax on gains from your property. Capital Gains Tax will be charged at 28 per cent on any amount above the basic tax rate.
If you are an additional or higher rate taxpayer, you will pay 28 per cent tax on your gains from your property.
If your Airbnb is furnished, you may be able to take advantage of certain types of tax relief, which we will explain in the following sections.
An Airbnb property will qualify as a Furnished Holiday Let, provided the following conditions are met:
- The property is sufficiently furnished for everyday use
- It is available for letting a minimum of 210 days a year
- It is let for a minimum of 105 days a year
- The property is situated in the UK or EEA (European Economic Area)
If you use Airbnb to rent a room in a furnished property that you live in as your main residence, you may qualify for an additional tax-free allowance on top of your Personal Allowance. This is under the Rent a Room Scheme.
The Rent a Room Scheme allows you to earn up to £7,500 a year in rental income (or £3,750 each if you’re letting with a partner) without paying tax on it. Note that this allowance applies to rent before expenses are deducted (gross rent), not profits.
Even if you don’t own your property or you are running a B&B or guest house within your main residence, you will qualify for the scheme.
However, you will not qualify for the scheme if any of the following apply to you:
- The accommodation is not within your main residence
- The property is not furnished
- You are letting the accommodation for business use
It is also worth noting that you must be in the property all or some of the time you let it out. This is to prevent people from abusing the scheme by moving out of their properties and renting them out while a big event is taking place (such as the Edinburgh Fringe Festival).
If your Airbnb expenses exceed £7,500, you can either claim this tax-free allowance without deducting any allowable expenses, or you can calculate your rental profit in the usual way (by deducting allowable expenses from your gross rental receipts) and pay tax on it. If your total expenses are less than £7,500, you may be better off claiming the Rent a Room allowance. Each tax year you can decide whether to claim it, so it’s always worth calculating the benefit of doing so.
Although letting out your property or room on Airbnb means you are subject to tax, the good news is that you may be entitled to all sorts of relief:
You may think you have to pay VAT on Airbnb income if your letting brings in more than £85,000, however, there are some exceptions to this. A single letting for more than 28 days, for example, can be claimed as exempt.
VAT rules are complicated, though, so it’s always best to seek advice from a professional to find out what you owe.
Capital Gains Tax relief
If you are selling an Airbnb property that qualifies as a Furnished Holiday Letting and it is not your main home, you may be eligible for Capital Gains Tax relief. This could include:
- Entrepreneurs’ Relief — If you qualify for Entrepreneurs Relief, you will pay Capital Gains Tax at a rate of 10 per cent, rather than 18 or 28 per cent.
- Business Asset Rollover Relief — If you are selling your Airbnb property to buy another one, you may be able to defer the Capital Gains Tax you owe on the property you are selling.
- Gift Hold-Over Relief — You may be able to avoid paying Capital Gains Tax by giving away your property or selling it for less than it is worth.
- Capital allowances — It is also possible to claim capital allowances for buying furniture, fixtures and fittings and equipment for the property you are selling.
Other tax reliefs
If your property qualifies as a Furnished Holiday Let, you can also count your profits as earnings for pension purposes and claim allowances like the Wear and Tear Allowance for furniture, fixtures and fittings and specific kinds of equipment in the property.
Income from Airbnb hosting is the same as any other income, which means it is taxable in the UK. Which Airbnb taxes you owe and how much you pay depends on how much you make in Airbnb income, whether the property is furnished and if you’re renting accommodation within your main residence or you’re letting out a property you don’t live in.
If you are considering becoming an Airbnb host, you may be charged the following taxes on your Airbnb income:
- Income Tax
- Corporation Tax
- Council Tax
- Business Rates
- Capital Gains Tax
The good news is that you may be entitled to certain tax allowance and reliefs, such as:
- The Rent a Room Scheme
- VAT relief
- Capital Gains Tax relief including Entrepreneurs’ Relief, Business Asset Rollover Relief, Gift Hold-Over Relief and Capital allowances
- Other tax reliefs like counting your profits as earnings for pension purposes and claiming allowances like the Wear and Tear Allowance