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Tax benefits of short-term renting in the UK

What are the different types of short-term renting?

The difference in tax regulations for buy-to-let and short-term renters

Since the Government introduced more tax rules, buy-to-let schemes have become far less popular. Before April 2017, property owners were able to deduct mortgage interest from their taxable income. This amount of this relief is now being reduced annually until the new law is fully implemented, in about 2-3 years' time.

However, the owners of short-term rental properties get to enjoy better tax benefits!

Tax Benefits of short-letting

The income from a short-term rental can be considered tax-free in certain cases.

1 - If you rent only rooms

Back in 2015, the new law stipulated that you could earn up to £7500 tax free per year from letting out a furnished accommodation in your home, called the "The Rent a Room Scheme". There is no restriction on the number of rooms you wish to short-let and the tax exemption is automatic if you earn less than the threshold. In the event that you earn more, all you need to do is to complete a tax return form online. However, those who rent out their entire home will still be taxed on the profits.

2 - If you rent your entire home

If you rent out your entire home, you don't need to pay any income tax or register with HMRC if your annual turnover is less than £1000.

In April 2017, another law was introduced targeted to the sharing economy. It is aimed at "micro entrepreneurs" who make some additional income on the side from services such as lift sharing or selling their belongings on eBay. It also applies to those who rent out their properties on sites like Airbnb and is referred to as the "property allowance". However, you can only claim one relief; it is not cumulative.

If you earn more than £1000 a year, you can apply for a "partial relief". This allows you to choose whether you wish to deduct your usual property business expenses from your income or to deduct the £1000 property allowance instead.

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