Landlords of Airbnbs and other short-lets risk facing penalties for tax evasion if they fail to report income on their rental properties.
That’s the warning from accountancy and advisory firm Baker Tilly Mooney Moore and it comes as HMRC targets short-term landlords in a campaign to stamp out undeclared income from property letting.
Under current tax requirements, customers who rent rooms in their own homes do not need to declare their rental income, unless they earn more than £7,500 from the property per tax year. If two people receive income from that same property, this limit drops to £3,750.
Landlords are reminded, however, that this tax relief does not apply to income gained from letting additional properties such as second homes. In these cases, hosts only receive a tax-free allowance of £1,000 per tax year.
In its latest agent update, HMRC says it will use varied information they hold on taxpayers, including details of property rentals, to identify landlords who have earned income from short-term property lettings and not declared it.
In response, The Head of Tax at Baker Tilly Mooney Moore - Angela Keery - has warned those renting out property should reassess their tax affairs and make sure they are aware of the relevant thresholds and declaration obligations in order to avoid penalties.
“The rules and limits around income from short-term rentals are very clear, however this move by HMRC to target short-term landlords should serve as a reminder that landlords have responsibility for their own declarations” she says.
“Anecdotally, we see more and more people coming into the rental market as landlords, so many who are new to it or are only renting one additional property may have a limited knowledge of their obligations. The launch of the HMRC campaign is a good time for customers to get their tax affairs in order, and ensure they aren’t at risk of facing a penalty down the line.”
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😂😂 not aware ? Good one… they are more than aware 🤔🤔
This £7500 should have been abolished when tax relief on BTL mortgages was abolished.
I seem to remember this being the justification for the original £4500 exemption for renting a room, which was intended for lodgers, not holiday guests.
Without the exemption why would anyone have a lodger? The cost of having a lodger can be significant. Extra water, gas, electricity, loss of single occupier discount on Council Tax, cost of stuff they sometimes 'borrow', etc. There really isn't much profit in it.
Jo
The chances are that anyone needing a lodger is on the 20% tax rate, so would still keep £6000 of the first £7500 profit on the rent charged to a lodger, plus full tax relief on any additional costs associated with housing the lodger ( unlike with BTL tenants).
In any case I am not so much against this £7500 exemption applying to lodgers renting a room, more against Airbnb hosts gaining at the expense of proper hospitality businesses with proper safety measures etc. in place.
As I said above, the original £4500 was intended to be equivalent to the BTL interest tax relief and both should either have remained or been removed at the same time.
Robert - I get that and to a point agree with you.
However, the real problem with making lodger income taxable is that people would have to do a tax return purely because they have a lodger. That would be too much worry and hassle for a great many people who have lodgers.
I guess it comes down to a choice between getting every conceivable drop of tax out of people who are providing low cost accommodation by sharing their own private home with strangers or the tax payer funding even more emergency accomodation for all the extra homeless people who were no longer living as lodgers.
I definitely agree short term holiday lets in properties that aren't your main residence should be fully taxed.
There are so many anomalies in the HMRC use of words such as income or profit it's hardly surprising some landlords are confused.
Different tax exemption levels for different types of letting is always going to result in grey areas.
Letting a room in your own private residence is firmly Rent-a-room with £7500 tax free. It's always been very clear that figure is total rent received, not profit.
Letting your second home for a few weeks in the summer is clearly holiday letting with the £1000 tax free exemption. I don't do that style of letting and have no idea if the £1000 is based on rent received or profit. Is it per owner or per property? Either way it's a bizarre figure to choose.
Letting a property predominantly as a holiday let has a whole range of attractive tax benefits, such as being taxed on a traditional method of profit calculation and sometimes very low business rates instead of Council Tax.
Letting a personally owned standard BTL is punitively taxed mainly on turnover with only minor expenses deducted and doesn't allow for finance costs.
Then there's the crossover stuff.
Is a self contained annexe with a locked door linking it your own home Rent a room or BTL or holiday let?
What about a log cabin in your garden?
What if you let a student BTL as a holiday let in August?
What if you do a 6 month winter AST in a holiday let and the tenants refuse to leave?
Wouldn't there be less room for error if it was just two options? Rent a Room for letting a room in the house you physically live in and tax on profit calculated in the traditional way (rent minus all expenses) for every other style of letting.
I would go further than your last paragraph and only allow the £7500 exemption for long term lodgers, thus making a home for someone, not for short term holiday lets which should have no exemptions and should have proper safety measures in place like proper hospitality businesses need to have
Robert - what would be long term? I used to do Rent a Room in my own house for language students at the local language school. Some would stay for a week, others for 9 month. People's plans change. Something that starts as a week turns into a year. Equally on a standard 6 month AST tenants sometimes leave early for numerous reasons - a fantastic job offer in Amsterdam, making a very embarrassing unrequited drunken pass at a housemate, suddenly discovering you're 38 weeks pregnant have all been thrown at me in the first 6 months of standard BTL tenancies.
Jo
I think you've answered your own question.
If all of the exceptions you mention are genuine exceptions then they would also be exceptions to long term lodgers.
I suppose the Landlord should be asked to keep records and demonstrate that on average lodgers stayed long enough to be regarded as long term.
Checking through short term let adverts and voters rolls could be other evidence of whether rentals were short or long term.
On the other hand, giving every landlord a single £7500 tax break would go a long way to compensate for the removal of the wear and tear allowance and taxing us on revenue instead of profit - but that won't happen!
"doesn't allow for finance costs"
Don't forget the tax credit...
Please vote for the opportunity to debate for tax relief in the parliament:
We can not post the link directly due to restrictions, it is -
petition.parliament.uk/petitions/627785?reveal_response=yes
Robert the 10% wear & tear allowance should have remained for furnished lettings which is what it was for, but abused and claimed by the smart guys letting unfurnished, which I believe was the reason for removing for all.
Yesterday morning first kick off 2 mattresses & one base to purchase and pick up £300.00 some start to the week on a Monday morning & the day got no better. They were replaced last year, I see tv adverts saying replace every 8 years but the swines ruined them, wore them through with no sheets and the carpet soiled & stained as well only 2 years old. 3 No. window handless broken off from the good double glazed bay window in one room on first floor even though they weren’t locked you simply press in the button & turn (donkey kong) anyway I got 3 from Toolstation another £20. I took one mattress to the dump & still stuck with other one & base, bulky heavy & chargeable items to dispose of…much more to this story their drugs & drink. I had no time for blogging yesterday a lot of pressure to soak up & carry on, where was I oh yes the 10% w/t & my free labour.
The little matter of rent short fall since Christmas, the lead Tenant advises they told her they weren’t paying or going and nothing could be done about it, music to Mr Gove’s ears, Anyway they appear to have left but wouldn’t say so leaving us in limbo. Enough is enough I had to take the bull by the horns, (Fairer Renting).
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