Tax break to be abolished for short-term letting?

A word of warning to those who rent out their homes on a short-term basis, including users of property sharing websites like Airbnb.  Buried deep within the Spring Budget were a couple of sentences that suggest the tax treatment of short-term letting is about to change. Tax expert Craig Walker explains more.

What is changing?

The government is looking to change the rules on the “rent-a-room” tax break. This is the relief that can allow you to earn up to £7,500 per year, tax free, from renting out furnished accommodation in your home.

The tax relief was originally designed to encourage people to take in long-term lodgers but there have been complaints that it has been abused by people renting out their rooms on a short-term basis.

The aim

The government says it will consult on proposals to “align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings”. We will have to wait to find out exactly what this means but there is a strong suggestion that the rent-a-room tax break could be removed for short-term letting.

The rise of the sharing economy

In recent years we have seen the rise of the new “sharing economy” in which people can rent beds, cars, boats and other assets directly from each other, co-ordinated via the internet. Just as peer-to-peer businesses like eBay allow anyone to become a retailer, sharing sites let individuals act as a boutique hotel or a car-hire firm as and when it suits them. Unsurprisingly the tax system has struggled to keep pace with the change and adjust to meet the new challenges it presents.

This latest announcement by the Chancellor appears to be targeted at the users of property sharing websites like Airbnb. There are now around 52,000 Airbnb hosts in Britain and it is thought that the average host earns around £2,000 a year by letting all or part of their home. A typical user in London will make around £3,500. If the government decides to scrap rent-a-room relief for short-term lettings, hosts who rent out rooms could face an increase in tax of between £400 and £3,375 per year.

If the rent-a-room relief is ultimately abolished for short-term lets, some tax relief  for expenses remains available. Please contact us for further advice.

The winners

Hoteliers will be very happy with the expected changes and are likely to see it as a welcome leveller with property sharing websites.

Craig Walker is a senior tax manager at the firm. He advises on all matters tax related, both corporate and personal, including income, capital gains and inheritance. For more details and advice, please contact Craig on cw@hawsons.co.uk or 0114 266 7141.