Updated 18 March 2019
The HMRC Rent a Room Scheme for UK Airbnb Hosts is a great tax break for anyone who uses Airbnb to rent a furnished room in their own home.
What is the HMRC Rent a Room Scheme?
The HMRC Rent a Room Scheme entitles everyone in the UK to earn up to £7,500 tax-free every tax year for renting out a furnished room in their own home.
A tax year runs from 6 April to 5 April.
How to Claim the HMRC Rent a Room Scheme for UK Airbnb Hosts
The Rent a Room Scheme for UK Airbnb Hosts entitles hosts to earn up to £7,500 every tax year without needing to let HMRC know about it.
You must be:
- Renting a room in your principal private residence
- Halfing your £7,500 entitlement if you share your home with someone.
Note – If you are already registered for self-assessment and send in a tax return for another reason, then you’ll need to include your UK Airbnb rent a room income on your return even if it is less than £7,500.
If you earn more than £7,500 then you need to register with HMRC and fill out a self-assessment tax return form to declare your Airbnb income.
You’ll still be entitled to the tax free exemption of £7,500, you’ll just have to claim it as part of filling out your tax return.
How to Register with HMRC as a UK Airbnb Host
Once you have completed the online form you’ll be registered for HMRC Self-Assessment and you will:
- Receive a UTR number, which a 10 digit code;
- Need to complete a self-assessment tax return form by 31 January each year declaring your income in the UK Land & Property section (see below);
- Pay any tax due by 31 January each year (along with payments on account by 31 January and 31 July each year).
Tax On the Rent a Room Scheme for UK Airbnb Hosts Earning Over the £7,500
Under the rules of the
The amount of tax you pay is worked out based on two things:
- How much money you make on Airbnb;
- Your total earnings for the tax year.
HMRC sets out 2 methods for you to choose from to work out how much money you have made renting a room out on Airbnb.
Rent a Room Scheme Method A
Declare the gross rental income you have collected from your lodgers (before Airbnb commissions) and pay tax on the amounts over £7,500.
Rent a Room Scheme Method B
Declare how much profit you made by renting a room in your home.
Profit means rent you receive less allowable expenses. Allowable expenses are all the things you pay for in relation to renting out your room.
Typical allowable expenses can include:
- Repairs & maintenance;
- A portion of utility bills;
- Accountants fees.
Switching Between Method A and Method B
You can choose to switch between Method A and B each time you submit a tax return.
That means you can choose with method gives you the most tax advantage, by declaring the lowest income.
How Much Tax Do You Pay On Airbnb Income Over the £7,500 Rent A Room Exemption
Once you have worked out how much you are going to declare for your Airbnb Income, you’ll need to gather together details of all your other forms of income. This is things like:
- Self-employment income
- Rental income
- Bank interest
Income tax is calculated at different rates according to how much you earn across all your forms of income during a tax year.
For 2018/2019 the income rates are:
|Personal Allowance||Up to £11,850||0%|
|Basic rate||£11,851 to £46,350||20%|
|Higher rate||£46,351 to £150,000||40%|
|Additional rate||over £150,000||45%|
An Example of Working Out Your Income Tax
In the tax year 2018/2019 Sarah:
- Earns £45,000 per year in full time employment;
- Collects £10,000 from renting a room in her house;
- Opts to use method A.
Sarahs total income is £55,000 so her tax bill would be £10,360 which is worked out as follows:
£11,850 x 0% = £0.00
£34,500 x 20% = £6,900
£8,650 x 40% = £3,460
Since Sarah was in employment, any tax already deducted on her payslips will be taken off the total amount due. The amount of tax paid is on a P60 form.
How to Complete Your Self Assessment Tax Return
Earnings under rent a room scheme need to be included in the Property Section of your tax return form.
There are three entries that need to be made:
1. Put an ‘X’ in box 4 to indicate to HMRC that you intend to claim for Rent a Room:
2. Enter Income collected from renting out the room.
3. Enter your claim for Rent a Room Relief in Box 37. This cancels out the income entry you made and means no tax charge will be made.
Top Tax Tip for Airbnb Hosts Using the Rent a Room Scheme
If you are new to Airbnb and so far have earned less than £7,500 but expect to earn more moving forward, it could be worthwhile registering with HMRC and submitting a personal tax return to record your tax loss in the current year. Tax losses can be used against future profits to save tax, so don’t lose out in the future.
You can read more Tax & VAT Advice for Airbnb Hosts here.
HMRC has some great guidance on the Rent a Room Scheme where they touch on many details around the scheme including time limits and tax losses.
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