Are you disclosing your Airbnb earnings to HMRC?

HMRC has renewed investigations into Airbnb to identify hosts who may have undisclosed rental income to HMRC. Airbnb will be required to share earnings data with HMRC to reveal any unpaid taxes which is a more proactive approach to recovering unpaid taxes. Any host, therefore, needs to avoid a wait and see approach and get their finances in order.

What are the rules on tax from earnings from holiday lets?
The rules on tax is linked to whether you let your property as a furnished holiday let (FHL) or not.

If you let a property that qualifies as a FHL…

• You can claim capital gains tax relief for traders (Business Asset Rollover Relief, relief for gifts of business assets and relief for loans to traders)
• You are entitled to plant and machinery capital allowances for items sucj as furniture, equipment and fixtures
• The profits count as earnings for pension purposes

What is a Furnished Holiday Let?
To qualify as a FHL your property must be:

• In the UK or in the European Economic Area (EEA) – the EEA includes Iceland, Liechtenstein and Norway
• Furnished – there must be sufficient furniture provided for normal occupation and visitors must be entitled to use the furniture
• The property must be commercially let (there must be an intention to make a profit). If the property is let out of season to cover costs but does not make a profit, the letting will still be treated as commercial.
• It must pass all three of the occupancy conditions

If you have more than one FHL in the UK they will are all taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business.

You will need to keep separate records for each FHL business because the losses from one FHL business cannot be used against profits of the other.

Occupancy conditions
Accommodation can only qualify as a FHL if it passes all 3 occupancy conditions.

How to use the occupancy conditions
For a continuing let, apply the tests to the tax year – that’s from 6 April one year to the 5 April the next.
For a new let, apply the tests to the first 12 months from when the letting began.
When your letting stops, apply the tests to the 12 months up to when the letting finished.

1. The pattern of occupation condition
If the total of all lettings that exceed 31 continuous days is more than 155 days during the year, this condition is not met so your property will not be a FHL for that year.

2. The availability condition
Your property must be available for letting as furnished holiday accommodation letting for at least 210 days in the year (140 days for the tax year 2011 to 2012 and earlier).

Do not count any days when you’re staying in the property. HMRC does not consider the property to be available for letting while you’re staying there.

The letting condition
You must let the property commercially as furnished holiday accommodation to the public for at least 105 days in the year (70 days for the tax year 2011 to 2012 and earlier).

Do not count any days when you let the property to friends or relatives at zero or reduced rates as this is not a commercial let.

Do not count longer-term lets of more than 31 days, unless the 31 days is exceeded because something unforeseen happens. For example, if the holidaymaker either:

• falls ill or has an accident, and cannot leave on time
• has to extend their holiday due to a delayed flight

If you do not let your property for at least 105 days, you have 2 options (known as elections) that can help you reach the occupancy threshold:

• the averaging election – if you’ve more than one property
• a period of grace election – if your property reaches the occupancy threshold in some years but not in others

Any monies earned on a holiday let is regarded as taxable income so it is imperative to calculate your profit and loss of running your holiday let to understand what you can get tax relief for and what you cant so that you understand what you owe. 

Managing FHL’s can be straightforward once you have the right advice and you understand what your responsibilities are and when filing and monies are due. Seek professional help for that peace of mind.

Our team have been advising landlords of furnished holiday lets and other residential and commercial lets for the past 20 years.

Get in touch for a free no-obligation chat.