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
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