RENTING YOUR HOME, A ROOM IN YOUR HOME, OR RENTING YOUR HOME TO HOLIDAY MAKERS

With summer upon us, everyone will be thinking about their annual holidays, so running an Airbnb business or guesthouse can be a great way to earn some extra money. In this article I will look at some of the reliefs available for renting your home or a part of it.

If you are letting your entire home to guests, then you are running a property business and will have to declare your rental income to HMRC on an annual personal tax return. You are allowed to deduct expenses from your rental income to arrive at the amount you will be taxed on. The most common expenses which you can deduct from your rental income will be any mortgage interest and a portion of your household bills such as gas and electricity, Council Tax, and insurance. You will also be able to claim relief for the costs of replacing domestic items (such as beds and microwaves) used in your property business.

If you are only letting part of your home to guests (a spare bedroom say), then Rent-a-Room relief will apply. This allows you to earn up to £7,500 in rental income tax free each year where the accommodation is provided in a person’s only or main home. If your rental income is more than £7,500, you can choose to either deduct your actual expenses from your rental income, or alternatively, simply be taxed on the amount of rental income over £7,500. So, for example, if you earn £10,000 in rental income in the tax year, you can deduct your actual expenses to arrive at your taxable profits, or simply deduct £7,500 and only pay tax on £2,500.

If your property business counts as a furnished holiday let, then there are some other useful reliefs to be claimed. There are several requirements related to the occupation and availability of the property which have be satisfied to meet the furnished holiday let conditions. Once these conditions are met, then you can claim tax relief for the initial cost of domestic items (rather than just claiming tax relief as and when they are replaced). Another benefit of meeting the furnished holiday let conditions is that when you come to sell the property, if there is any capital gains tax due on the property from the rental business, the rate of tax is only 10%, (broadly 10% on the difference between original cost plus purchase expenses: and selling price less selling expenses).

As mentioned above, one thing to be aware of if you are thinking of renting out part of your home is capital gains tax. If someone sells their main residence, they usually don’t have to pay any tax at all as it is covered by the principal private residence (PPR) relief. However, if they are running a rental business in their home, the gain on the part of the home that relates to the rental business will not qualify for principal private residence relief. The gain on the part of the home that relates to the rental business may be covered by other exemptions and reliefs, but if not, it will be subject to Capital Gains Tax at 18% or even 28%.

Renting out your entire home, a room in your home, or renting out your home to holiday makers can each be a useful source of income, but it is important that you speak to an accountant first to consider your specific circumstances and what reliefs you can claim and if there are could be any unintended consequences when you come to sell the property.

Peter Bevan Bevan & Co, Chartered Accountants peter@bevan.co.uk

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