Airbnb Owners - Easily Calculate Your Tax Liabilities!

9 min read

It is a good source of income to host on Airbnb, but there are tax responsibilities that come with it. You may be renting out a room in your home, a second property, or Co-Hosting for another listing, and you need to know how your earnings are taxed and how to calculate your tax liabilities correctly. All of it can be done easily by using Airbnb tax calculator.

If you are aware of your tax liability or how much can you make on Airbnb, you can avoid penalties and reduce your tax bill through allowances and deductions and stay in good books with HMRC. Here is everything you want to know about Airbnb taxes in the UK and how to calculate what you owe.

Do You Pay Taxes on Airbnb Income?

You can use Airbnb tax calculator available on their official website and yes, all income raised from these rentals shall be taxable, but the amount you pay depends on:

Whether you let out a spare room in your main home or a second property
Your total rental income
The number of days you rent out your property
Whether you qualify for any tax-free allowances

Depending on these factors, you may need to declare your income and file a self assessment tax return with HMRC.

Renting Out a Room in Your Home

You could qualify for the Rent-a-Room Scheme if you rent out a spare room in the house where you live: then you may be able to earn as much as £7,500 tax-free each year. You do not have to declare income to HMRC if it is less than £7,500. If your income generated from using Airbnb is more than that, you will have to declare all of it and pay tax on what is in excess of £7,500.

If the property is owned jointly, the tax-free allowance of £7,500 will be divided into both owners who should enjoy up to £3,750 each as tax free.

(Note - that claiming relief under Rent-a-Room, you can't claim to offset expenses like cleaning, utilities, or even the cost of maintaining the premises. This may be a case in which the high hosting expense outweighs not availing oneself of the Rent-a-Room Scheme and, instead, offsets real expenses on your rental income)

Renting out a second property

If you let out a second home or a home you do not live in, you can make up to £1,000 per year free of tax using the Property Allowance Scheme.

airbnb tax

If your income from Airbnb exceeds £1,000 per year, you have to report all of it to HMRC. You can do this either:

Deduct £1,000 property allowance
Deduct actual expenses (whatever is less is deducted)

In case you opt to deduct actual expenses, here are some expenses allowed:

Interest mortgage tax relief
Agent and accountants letting charges
Legal charge
Maintenance repairs
Utility, including electricity and gas, and internet
Services charge and Council tax
Liability insurance property owner

Note that the sum of Income Tax depends on total taxable income generated within a financial year. However, if renting is able to thrust you upwards, you shall pay more from tax.

Shared Occupancy and Rental of House You Own

Even if you share an Airbnb listing or you are renting out a house which you do not own, you have to report your income and pay tax on it.

Airbnb income should be reported, and tax must be paid on profit after all expenses allowed.
You must also register for VAT if your annual income is above £85,000.
You pay business rates, not council tax, if rental days exceed 140 days in a year.
You can claim more tax relief if your Airbnb is considered Furnished Holiday Letting (FHL). It has capital allowances and reduced Capital Gains Tax when selling the property.

Airbnb Hosting Rules and Regulations

Before listing your property on Airbnb, be sure to research local Airbnb rules:

In London, the entire home can be rented for only up to 90 nights in a year. Airbnb enforces this rule automatically. Other UK cities may have similar rental restrictions. So, check with your local council.
You will need to cover a license or permit if you intend to let out your accommodation for more than the permitted period. Check local regulations as you do not want a fine or, even worse, be prevented from listing the property.

Tax Return When Hosting on Airbnb

If your Airbnb earnings are above the tax-free threshold, then you must submit your Self Assessment tax return to HMRC and also make sure to use the Airbnb tax calculator when in doubt.

How to Pay Your Self Assessment Tax Return

Register for Self Assessment on the HMRC website if you have not already done so.
Note down every pound you earn on your Airbnb and all and any allowable expenses you can claim
Claim one of these - £1,000 Property Allowance or Deductible Expenses.
Fill in your tax return online at the end of the tax year-31 January at the latest.

airbnb income tax calculator

Example Calculations

Scenario 1 - Letting a Spares Room in Your Home

If you receive £9,000 from renting a room each year:

You can offset £7,500 against it, tax free
You have a taxable income of £1,500
At a Basic Rate of 20% you will pay £300

Scenario 2 - Second Homes

If you let out a second home through and earn £15,000 per annum through Airbnb rental income, and you decide you prefer to claim expenses instead of the £1,000 property allowance:

Expenses (mortgage interest, bills, maintenance, etc.) - £4,000
Taxable income - £15,000 - £4,000 = £11,000
Tax (at 20% rate) - £2,200
Had you offset the £1,000 property allowance, then the taxable income would be £14,000. The tax that would arise will be £2,800. Savings on expenses: £600 was saved.

How to Reduce Tax on Airbnb Income

Had your allowable expenses been above £1,000, then these can be used to offset.
You can claim more tax relief if your Airbnb qualifies as a Furnished Holiday Letting.
Maintain a record of all income and expenses to avoid overpaying tax.
Use an online tax calculator to estimate the tax liability before filing.

Paying tax on your Airbnb income does not have to be complicated. You can minimize your tax bill and ensure compliance with HMRC by understanding the various tax allowances, deductions, and rates.

Whether you rent out a spare room, a second property, or act as a Co-Host, make sure you declare your earnings, claim the right allowances, and file your tax return on time. If you are unsure about how much are Airbnb taxes or your Airbnb income tax, you can use a tax advisor or an online tax service to help you with calculations and filing.

All the information and figures are the latest at the time of publication of this blog, for any other recent update make sure to check HMRC official website.