A Guide for Airbnb Hosts on Section 24 Tax

The rising popularity of serviced apartments attracts guests seeking hotel-like comforts while maintaining their privacy. To stand out among the competition and increase profitability, it’s crucial to enhance your marketing strategies for your multiple properties in town.

Section 24 impacts how you rent out your property as a holiday rental, and it can be a financially advantageous endeavor. It has the potential to generate impressive returns, especially if managed effectively. The appeal of using platforms like Airbnb to supplement income has grown significantly. However, it’s essential to understand the tax implications associated with income from your Airbnb rental property. In this article, we’ll provide comprehensive insights into navigating the complexities of tax regulations concerning Airbnb holiday lets.

Understanding Airbnb Income and Taxes

What are the tax ramifications of letting out your property within your primary residence? How does it differ when renting a property where you don’t reside? Are you eligible for the rent-a-room scheme in a rented property, and what impact will it have on your tax obligations, deductions, and overall financial situation? These are vital questions, and understanding the taxation of Airbnb income in the UK is crucial for property owners.

The Rise of Airbnb Hosting

In recent years, Airbnb hosting has become increasingly popular among landlords both in and outside London. Many property owners have turned to Airbnb to let their properties, whether it’s their primary residence or an additional property they own. This surge in popularity has prompted individuals to seek comprehensive guidelines on the taxation of Airbnb hosting income. In this article, we’ll delve into the key tax provisions that apply to income generated through Airbnb hosting.

Section 24: Tax Impact for Landlords and Hosts

What is Section 24, and how does it impact landlords and hosts? Section 24 represents a significant change in UK tax laws that affects landlords. Under these new regulations, landlords can no longer deduct mortgage interest and related expenses, such as mortgage arrangement fees, from their rental income before calculating their tax liability.

Navigating Section 24 as an Airbnb Host

So, do the Section 24 tax rules apply to Airbnb hosts? Many Airbnb hosts have found ways to navigate the Section 24 interest relief restriction by classifying their properties as furnished holiday lets (FHLs), as mentioned earlier. Section 24 primarily applies to properties that do not meet the FHL criteria. This restriction essentially limits the ability of higher-rate taxpayers to claim full relief on their mortgage interest.

Tax Benefits and Considerations

As a result, an increasing number of individuals are considering transitioning from traditional long-term rentals to Airbnb hosting. They are drawn to the potential for higher income and reduced tax obligations.

Capital Gains Tax Relief for Airbnb Landlords

Section 24 represents a significant shift in UK tax laws for landlords, fundamentally altering how tax liabilities are calculated. This change eliminates the ability to deduct expenses like mortgage interest from rental income, which can potentially increase tax bills. However, there is an intriguing exception for some Airbnb landlords who qualify for Furnished Holiday Lettings (FHL) status. For those who meet the FHL criteria, Section 24’s restrictions on interest claims may not apply, offering a potential solution to mitigate the impact of this tax change. This shift towards FHL and Airbnb hosting not only has the potential to boost income but also provides a strategy to navigate Section 24’s challenges more favorably. It’s essential to seek professional advice to make informed decisions in this evolving tax landscape.

What about capital gains tax for Airbnb hosts? If your property qualifies as a furnished holiday let and you do not occupy it full-time, you can benefit from capital gains tax relief, which includes several advantages.

1. A reduced Capital Gains Tax rate of 10% instead of the standard 28% when selling the property under the Business Asset Disposal Relief scheme, formerly known as Entrepreneurs’ Relief.

2. Access to capital allowances for property fixtures, fittings, and furniture, potentially reducing your overall tax liability.

3. Utilizing the Gift Hold-Over Relief scheme, allowing you to avoid immediate Capital Gains Tax payment when selling or gifting business assets below their market value, benefiting both you and the buyer.

4. The opportunity to defer Capital Gains Tax liability when selling one Airbnb property and acquiring another through the Rollover Relief scheme, providing flexibility and potential tax savings.

Guidance for London Landlords

Advice for Landlords in London According to the Greater London Council (General Powers) Act 1973, the use of residential properties for temporary accommodation, specifically for sleeping purposes lasting less than 90 consecutive nights, is considered a change in use across all 32 London regions, necessitating planning permission. However, it’s worth noting that the UK Government has chosen to maintain this regulation within the Deregulation Act 2015, seen as promoting Airbnb-style short-term lettings. This new rule permits property owners to rent out their properties for up to 90 days in a financial year without violating this regulation. Airbnb automatically enforces this 90-day limit on property listings. More detailed information regarding this regulation can be found on both the Airbnb website and the UK Government website. In terms of taxation, failing to genuinely let your property for a minimum of 105 days, with at least 210 days of availability, disqualifies you from Furnished Holiday Letting (FHL) status and its associated tax benefits. Therefore, obtaining planning permissions is a crucial step to becoming eligible for FHL and accessing these tax advantages.