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Where Taxpayers and Advisers Meet

AIRBNB tax for sub-letting

HappyTaxMcGee
Posts:3
Joined:Mon Jun 13, 2022 10:57 am
AIRBNB tax for sub-letting

Postby HappyTaxMcGee » Mon Jun 13, 2022 11:12 am

Hello,

I lease a residential property in Hackney direct from the landlord; we have a formal agreement in place. I intend to start subleasing the spare room using AirBnB. I have been given permission from the landlord to do so; I will continue to live in the property. I want to know what I'm liable to pay in tax for the new income. I carried out some basic research into the tax implications but I have hit a little wall I can't quite get past.

I see from the HMRC website that there are 2 ways to do this..

Option A - Calculate rental profits in the standard way, i.e., deducting all allowable expenses from the gross rental receipts. You pay tax on the net rental profits. For example, suppose your total rental income in a tax year is £15,000 and you incurred total expenses (cleaning, electricity, meal, etc.) of £8,000 for the area you let. Your rental profits will be £7,000 (£15,000 income less £8,000 expenses), and you will pay tax on this profit.

Option B - Don’t deduct any allowable expenses, but instead claim £7,500 tax-free allowance. If you select this option, you are not allowed to deduct expenses.

So, where I'm not sure about this is with option A. If I'm responsible for the whole amount of rent on the lease eg: £2,000 (pcm) - and my total bills are £360 (pcm, including power & council tax).. At what point would my income from Airbnb revenue be classed as profit..? strictly speaking, I won't be capitalising on any of that income because it will never be more than £2,000 (pcm) plus bills.

Do I halve the rent as it is a 2 bedroom property, then amounts more than 50% are classed as profit..?

Any help would be greatly appreciated ..!!

John

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: AIRBNB tax for sub-letting

Postby robbob » Tue Jun 14, 2022 8:38 am

Option B - Don’t deduct any allowable expenses, but instead claim £7,500 tax-free allowance. If you select this option, you are not allowed to deduct expenses.

So, where I'm not sure about this is with option A. If I'm responsible for the whole amount of rent on the lease eg: £2,000 (pcm) - and my total bills are £360 (pcm, including power & council tax).. At what point would my income from Airbnb revenue be classed as profit..? strictly speaking, I won't be capitalising on any of that income because it will never be more than £2,000 (pcm) plus bills.

Do I halve the rent as it is a 2 bedroom property, then amounts more than 50% are classed as profit..?
Huh - you have completely lost me

If your "total gross income before deduction of any fees" is 15k as in example A - you deduct £7.5k "fixed sum" from 15k gross income and are taxed on £7.5k.
If income was 20k you would deduct same 7.5k and pay tax on 12.5k

Note its gross income here - so that will be full rent charged to lodger before deudtcion of any airbnb fees (as they are an expense)

HappyTaxMcGee
Posts:3
Joined:Mon Jun 13, 2022 10:57 am

Re: AIRBNB tax for sub-letting

Postby HappyTaxMcGee » Tue Jun 14, 2022 8:59 am

Apologies, I took that text straight off HMRC website - and admittedly I'm very confused myself.

My question is:

As a renter myself, at what point would the income generated from subletting my spare room be deemed as profit ?
If I'm paying rent of £2,000 pcm in rent to the landlord for a 2 bedroom flat and I generate £1,000 in subletting income, am I not at parity..?

I know that an owner of a property cannot claim their mortgage payments; however, as a tenant, I'm not benefiting from the value increase of the asset - so, isn't my rent claimable as an expense? as well as the council tax and bills etc..?

In other words, I'm not actually making any profit.. am I..?

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: AIRBNB tax for sub-letting

Postby robbob » Tue Jun 14, 2022 9:19 am

so, where I'm not sure about this is with option A. If I'm responsible for the whole amount of rent on the lease eg: £2,000 (pcm) - and my total bills are £360 (pcm, including power & council tax).. At what point would my income from Airbnb revenue be classed as profit..? strictly speaking, I won't be capitalising on any of that income because it will never be more than £2,000 (pcm) plus bills.

Sorry i partly misread your original post - its part A you are questioning - you need to work out costs that relate to income - at its most basic if 50% of property is always used ref airbnb then you may be able to claim 50% of expenses that relate directly to tenant costs so that could include % of rent paid - you need to be very careful though that your calcs are fair and reasonable. If 30% of the time practicably speaking there may be only you using "shared" areas of the property if the property is not let 100% then its a judgment call as to what % is fair and reasonable ref claims. If their are quibbles in that regard between you and hmrc officer then it goes to tribunal who decide on "balance of probabilitie" whose viewpoint is correct.

HappyTaxMcGee
Posts:3
Joined:Mon Jun 13, 2022 10:57 am

Re: AIRBNB tax for sub-letting

Postby HappyTaxMcGee » Tue Jun 14, 2022 9:59 am

This is extremely helpful. Thank you very much.


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