Airbnb-type lets – is rent-a-room relief available?

Many homeowners have taken advantage of sites such as Airbnb to let out a spare room. For some, this is on a temporary basis, and others, their whole property while they are away. In most cases, as long as the host meets the associated conditions, they can enjoy rental income of up to £7,500 tax-free under the rent-a-room relief scheme.

Rent-a-room relief

Rent-a-room relief is a relief that allows individuals to earn up to £7,500 per year from letting out furnished accommodation. This amount is tax-free.

This limit is halved where more than one person benefits from the income. In this way, each person can enjoy rental income of up to £3,750 per year tax free.

The relief is available to owner-occupiers and tenants. To qualify, the rental income must relate to the let of furnished accommodation in the individual’s only or main home.

The relief is applicable where a room is let furnished to a lodger. It can also be used where the letting amounts to a trade. An example of this could be where the individual runs a guest house or a bed-and-breakfast. Services such as meals and cleaning fall under this, too.

Where gross rental income is less than £7,500 (or £3,750 shared income), the relief is automatic. There is no need to tell HMRC.

How much tax if my rental income exceeds the allowance

Where the gross rental income exceeds the rent-a-room limit, the individual has a choice. They can deduct the rent-a-room limit and pay tax on the excess or calculate the profits in the normal way by deducting the actual expenses. Claiming rent-a-room relief will be beneficial if there is a profit and actual expenses are less than the rent-a-room limit.

It is not possible to create a loss by deducting the rent-a-room limit if, for example, rental income is less than the limit. You simply treat the income as nil.

Where deducting actual expenses from rental income produces a loss, it is better not to claim rent-a-room relief to preserve the loss.

When can’t you claim the Rent-a-room relief?

You cannot claim rent-a-room relief where the accommodation is not in the individual’s main home, where accommodation is unfurnished or where a UK home is let out while the owner is working abroad.

Airbnb-type income

The issue is not whether the income is from an Airbnb-type let; rather, whether the property meets the conditions for rent-a-room relief. This is likely to be the case if the nature of the Airbnb let is such that it comprises the let of a furnished spare room in the taxpayer’s home, or the whole home for a short period, such as a weekend or a couple of weeks when the homeowner is on holiday.

However, where the individual uses Airbnb or similar to let accommodation in a property which is not his or her main home, for example a holiday cottage, rent-a-room relief is not available and the normal property rental rules apply. The individual may, however, benefit from the property income allowance of £1,000.

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