A Guide to Airbnb Council Tax and Local Taxes
- UpperKey
- Oct 1, 2023
- 12 min read
Updated: 3 days ago
Whether you’re a seasoned host or thinking of stepping into the world of Airbnb in England, understanding Airbnb council tax and related tax implications is crucial. Many hosts use Airbnb to generate income, which brings important tax considerations. In this guide, we will unravel the mysteries surrounding taxes and fees for Airbnb hosts, helping you to navigate this potentially confusing terrain.
Table of Contents
Key Takeaways
Homeowners usually pay council tax, but if a property is used extensively for Airbnb, it may be subject to business rates instead.
Airbnb income must be declared to HMRC, and hosts are required to pay income tax on their earnings.
This furnished holiday scheme allows for tax-free earnings from renting out rooms, but it may not apply to all Airbnb hosts.
Determine your property’s usage, contact your local council for guidance, check with local authorities for updates on council tax rate changes, update your council tax band if needed, and keep accurate records.
Local authorities may adjust the council tax rate for short-term rentals, which can impact hosts' financial planning.
Properties available for short-term let for 140 days or more may be subject to business rates.
What is Airbnb in the UK?
What is an Airbnb UK? Simply put, Airbnb is an online platform that connects people who have space to rent with those looking for accommodation. Airbnb primarily facilitates short term rentals, meaning properties are let out for brief periods rather than as long-term lets. These short term rental properties are subject to different regulations and tax considerations compared to traditional long-term rentals. While this seems straightforward, when it comes to finances and taxes, things can get complicated.
Council Tax vs. Business Rates
As a host, you need to know the difference between council tax Airbnb obligations and Airbnb business rates. Council tax generally applies to domestic properties, while business rates may apply to a property based on its use as a short-term rental. Typically, homeowners pay council tax on their property. However, if you’re running an Airbnb UK, there might be a shift.
Income Tax and Airbnb
Just because you’re earning extra income through Airbnb doesn’t mean you can escape the taxman. UpperKey reminds all hosts that they need to declare their rental income from Airbnb to HM Revenue & Customs. Property owners must declare all Airbnb income, especially if they manage multiple properties, as this can affect their tax obligations.
With platforms and tools available like an Airbnb income calculator UK and an Airbnb profit calculator UK, hosts can get an estimate of potential earnings. But remember, this is before tax. To stay on the right side of tax laws, you might consider using a tax calculator when starting an Airbnb business UK. This move might provide you with better avenues to manage and declare your income properly.
Airbnb Council Tax
Whether you’re renting out your entire home while you’re away or just a spare room, council tax still applies. The council tax rate you pay depends on your property's usage and classification, as local councils assess whether your property is a primary residence or rented out extensively. But it’s essential to understand how much you can make on Airbnb UK without it impacting your tax.
The furnished holiday let rent-a-room scheme Airbnb initiative allows homeowners to earn a certain amount tax-free by renting out furnished room(s) in their homes. This doesn’t always apply to Airbnb hosts, so ensure you’re informed about the Airbnb tax rules.
Setting Up Council Tax for Your Airbnb
Understanding how to set up Airbnb UK with regard to council tax is crucial for hosts to stay compliant with local regulations. Local councils are responsible for assessing your property's tax status and determining whether council tax or business rates apply. Here are some steps from UpperKey on how to set up council tax for your Airbnb:
1. Determine Your Property’s Status
First and foremost, determine if your property will be primarily used as your residence or exclusively for Airbnb. Whether your property falls under council tax or business rates depends on its primary use and the number of days it is let. If you’re only renting out a room occasionally or the whole property while you’re away a couple of times a year, your council tax obligations might not change.
2. Contact Your Local Council
Before you make any decisions, contact your local council. For matters related to business rates, property classification, or potential tax reliefs, reach out to your local council's Business Rates department for guidance. They can provide guidance on council tax Airbnb specific to your area. Some councils might have specific rates or provisions for properties used for short-term letting.
3. Update Your Property’s Council Tax Band
If you’re turning your residence into a full-time Airbnb or holiday let, you might need to move from paying council tax to paying business rates. If your property qualifies, you may need to pay business rates instead of council tax, which can offer different financial implications. This is especially true if your property is available for short-term lets for 140 days or more per year.
4. Apply for Any Relevant Discounts or Exemptions
In some cases, if a property is used for business purposes, such as a full-time Airbnb, it might be eligible for Small Business Rate Relief. Eligibility for Small Business Rate Relief depends on your property's rateable value, which determines whether you qualify and how much relief you can receive. Be sure to check with your local council about any discounts or exemptions that could apply.
5. Regularly Review Your Property’s Status
If the usage of your property changes, for instance, if you decide to stop letting it out on Airbnb and move back in, or vice versa, you will need to inform your local council. Periodic reviews ensure you're always in the correct council tax band or business rate category.
6. Keep Accurate Records
Regardless of whether you're paying council tax or business rates, always keep accurate records. This includes how many days the property is let, any communications with the council, and copies of bills and payments. These records are crucial for determining your overall tax liability tax purposes and can be beneficial in case of any disputes.
7. Consider Seeking Professional Advice
Tax matters can be complicated. If you're unsure about your Airbnb council tax obligations, or if you're juggling between council tax and business rates holiday lets, consider seeking advice from a tax advisor or accountant familiar with short-term letting regulations.
Holiday Let Business Rates
For hosts who let out their properties frequently or have invested in a holiday let, they might be subjected to business rates holiday lets. Generally, properties in England or Airbnb in England that are available to let for 140 days or more in a year are considered self-catering properties and are subject to business rates instead of council tax, which helps fund local services. In Scotland, there’s the 140-day rule Scotland to consider.
If your Airbnb property qualifies as a furnished holiday let (FHL), it must be available for letting to the public for at least 210 days a year and actually let for at least 105 days. Furnished holiday lets benefit from specific tax advantages, such as capital allowances, capital gains relief, and allowances for small-scale landlords, making this classification attractive for many hosts.
Switching from council tax to business rates can be financially advantageous, especially if you qualify for small business rate relief. However, in some areas like central London, planning permission may be required for short-term lets, and business rates may be calculated differently due to higher property values. Additionally, planning permissions may be necessary if you intend to alter your property for commercial or holiday let use.
Setting Up Airbnb Income Tax
Starting an Airbnb can be exciting, but as with all business endeavours, you need to be on top of your financial responsibilities. Specifically, understanding how to set up and manage Airbnb income tax is essential for all hosts in the UK.
If you own business assets, such as a furnished holiday let, there may be specific tax reliefs available when selling or transferring these assets.
The process involves:
1. Register for Self-Assessment
If you haven't previously filed a self-assessment tax return, you'll need to register with HM Revenue & Customs (HMRC) as soon as you start earning Airbnb income. This process informs HMRC that you have additional income outside of your regular employment that needs to be taxed. UpperKey can help with this if you're unsure.
2. Understand Your Allowances
Before calculating your tax, consider if you qualify for the Rent a Room Scheme. The rent-a-room scheme Airbnb allows homeowners to earn a specific amount tax-free each year from renting out a room or rooms in their homes. This tax-free allowance might change each year, so always check the current thresholds and keep yourself up-to-date.
3. Record All Your Earnings and Expenses
To accurately calculate your income tax, you'll need a clear record of your Airbnb earnings. This not only includes the rent you receive but also any cleaning fees or other additional charges. At the same time, be sure to keep track of all related expenses, such as maintenance costs, property management fees to UpperKey, repairs, or any service fees paid to Airbnb. These can be deducted from your income to reduce your taxable profit.
4. Use Airbnb Tools
The Airbnb income calculator UK and other tools provided by Airbnb can be handy in estimating your potential earnings. Remember, these are gross figures, and actual profit might be different once expenses are deducted.
5. Complete Your Tax Return
Each year, you'll need to complete a self-assessment tax return. Here, you'll declare all your Airbnb income and any related expenses. The difference between these figures will determine your taxable profit and subsequently, your income tax due.
6. Pay What You Owe
Once your tax has been calculated, ensure you pay HMRC by the deadline. Late payments can incur penalties, so it's crucial to be timely. If you're not sure about how much tax you owe, tools like an Airbnb tax calculator UK can provide an estimate.
Tax Calculations for Airbnb
Calculating your Airbnb tax liability starts with understanding your taxable income from rental activities. As an Airbnb host, your taxable income is the total amount you earn from Airbnb rentals, minus allowable expenses. These expenses can include cleaning fees, maintenance costs, mortgage interest, and other costs directly related to running your Airbnb property.
To make this process easier, many hosts turn to tools like the Airbnb tax calculator UK. This tool helps estimate your taxable income and gives you a clearer picture of your potential tax liability before you file your self assessment tax return.
If your property is subject to business rates instead of council tax, the Valuation Office Agency (VOA) will determine your property’s rateable value. This value is crucial, as it directly impacts how much you’ll pay in business rates. If you believe your property’s rateable value is too high, you have the right to appeal to the VOA for a reassessment.
By keeping detailed records of your Airbnb income, allowable expenses, and any correspondence with the VOA, you can ensure your tax calculations are accurate and that you’re only paying what you owe.
Maximizing Tax Reliefs
Airbnb hosts can significantly reduce their tax burden by making the most of available tax reliefs and benefits. Start by claiming all allowable expenses, such as mortgage interest, council tax, business rates, and maintenance costs. These deductions can lower your taxable income and, in turn, your overall tax liability.
If you decide to sell your Airbnb property, you may be eligible for capital gains tax relief. By using schemes that allow you to defer capital gains tax, you can manage the timing of your tax payments and potentially reduce the amount owed. It’s important to check with your local council or a tax advisor to see if your property qualifies for these reliefs.
For hosts whose properties are subject to business rates, applying for Small Business Rate Relief (SBRR) through your local council can lead to substantial savings on your business rates bill. Additionally, working with an accountant or tax advisor can help you identify further tax benefits, such as income tax relief, and ensure your tax strategy is as efficient as possible.
Accurate record-keeping is essential. By maintaining up-to-date records of your income, expenses, and any claims for relief, you’ll be well-positioned to maximize your tax benefits and minimize your tax liability.
Is There VAT on Airbnb?
Now, is there VAT on Airbnb? Airbnb's service fee includes VAT for hosts and guests from the European Union, Switzerland, Norway, Iceland, and Liechtenstein. However, the VAT does not directly apply to the income you earn from letting your property.
Paying for Airbnb Services
When it comes to the question, ‘when do you pay for Airbnb?', payment is typically made by guests before arrival. For hosts, the platform might deduct a fee before sending your payout. The Airbnb fee calculator UK can be a helpful tool for hosts to calculate potential deductions.
Tax Implications for Airbnb Investors
If you’re investing in multiple Airbnb properties, it’s vital to understand the tax implications that come with managing several rental properties. While you can claim tax relief on mortgage interest and other allowable expenses, be aware that higher tax rates may apply to your rental income, especially if your earnings push you into a higher tax band.
Navigating these complexities is easier with the help of a tax advisor, who can help you optimize your tax strategy and minimize your overall tax liability. Professional advice is especially important for investors, as tax laws can be intricate and subject to change.
Some investors choose to operate through a limited company, which can offer tax efficiency and potentially lower your tax rates on rental income. However, this approach comes with its own set of rules and considerations, so it’s crucial to seek professional advice before making any structural changes to your Airbnb business.
By staying informed and proactive, investors can ensure compliance with tax laws and make the most of their Airbnb rental income.
Long-Term Tax Planning for Airbnb
Long-term tax planning is key for both Airbnb hosts and investors who want to maximize profits and minimize tax liability over time. When buying or selling an Airbnb property, it’s important to consider the potential tax implications and plan your strategy accordingly.
A tax advisor can help you develop a comprehensive tax plan tailored to your individual circumstances and business goals. This includes considering how changes in tax laws and regulations might affect your Airbnb business, and making adjustments as needed.
Regularly reviewing and updating your tax plan ensures you stay compliant and take advantage of any new tax benefits or reliefs. By planning ahead, you can avoid unexpected tax bills and keep your Airbnb business running smoothly.
Setting Up and Managing Your Airbnb UK
Starting and running an Airbnb UK involves more than just listing your property. The how to start an Airbnb business UK journey includes understanding all tax obligations. Tools like an Airbnb tax calculator can offer insights into potential earnings and taxes.
If you're buying a property for Airbnb UK, always consider the council tax and business rate implications. It's also crucial to be informed about the Airbnb tax UK policies and regulations.
Common Tax Mistakes to Avoid
Many Airbnb hosts fall into common tax traps that can lead to unnecessary penalties and increased tax liability. One of the most frequent mistakes is failing to declare rental income on your self assessment tax return. All Airbnb income must be reported to HMRC, regardless of the amount.
Another pitfall is claiming expenses that aren’t allowable, such as personal costs or expenses unrelated to your Airbnb business. Only claim deductions that are directly connected to your rental activities to stay compliant with tax laws.
Accurate record-keeping is essential. Keep detailed records of all income and expenses, and seek professional advice if you’re unsure about your tax obligations. Missing deadlines for tax returns or payments can result in fines, so always stay on top of important dates.
By avoiding these common mistakes and staying informed about your tax obligations, you can minimize your tax liability and ensure your Airbnb business remains compliant with all relevant tax laws and regulations.
Tips to Stay Compliant
Always declare your income. With Airbnb taxes, it's better to be safe than sorry.
Keep records of all your bookings, expenses, and income. This can help during tax season.
Stay informed. Tax rules can change, so always keep an eye on any updates to Airbnb tax rules.
Consider professional help. Dealing with taxes can be tricky, so seeking assistance from an accountant or tax advisor can be invaluable.
Managing an Airbnb business UK can be both rewarding and challenging. By understanding your obligations related to Airbnb council tax, business rates, and other related taxes, you can ensure that your venture remains both profitable and compliant. Need advice or assistance? Contact UpperKey today to speak to one of our experienced Airbnb property managers.
FAQs
Q1: Does Airbnb pay my local taxes?
No, you are responsible for paying your local taxes.
Q2: How do I add local taxes to my Airbnb listing?
Set up your listing to include local taxes by adjusting the pricing settings or contacting Airbnb support for guidance.
Q3: What are the tax rules for Airbnb?
Airbnb hosts must report rental income and may need to pay income tax, VAT, or local occupancy/tourist taxes depending on their country. In many places, Airbnb automatically collects and remits tourist taxes. Income from Airbnb must usually be declared on annual tax returns.
Q4: How to manually collect taxes on Airbnb?
To manually collect taxes, go to your Airbnb listing > “Pricing and availability” > “Taxes”. If Airbnb doesn’t collect taxes for your location, you can add a custom tax (e.g., city tax or VAT) as a “manual tax” for guests to pay at check-in or through the Resolution Center. Always disclose this in your listing.
