Starting from 2025, Airbnb hosts in EU countries will need to pay VAT! What about UK hosts?
- TBA
- Jun 26, 2024
- 4 min read
The EU recently announced that starting from 2025, users of third-party short-term rental platforms such as Airbnb will need to pay VAT on any rental income received. This also applies to overseas property owners renting out their foreign properties and apartments.
In contrast, HMRC has always imposed strict rules on short-term rentals in the UK, which include levying VAT. So, if you’re renting out property on a short-term basis, what do you need to be aware of?
1. Charging UK VAT on Airbnb rentals
In the UK, ordinary rental income from residential properties is exempt from VAT. This includes properties that are purchased and rented out on a buy-to-let basis.
Airbnb (and other short-term rental platforms) are categorised as holiday lets, similar to hotels, rather than a residential rental. This means that Airbnb rentals are subject to normal VAT rules – a standard rate of 20% should be charged.
This becomes relevant if you meet the VAT registration threshold (£90,000 in 2024/25), after which you will also need to report and remit the VAT collected.
2. Other taxes
Income Tax
Perhaps you started renting out your small property on Airbnb out of a hobby or as a way to earn extra pocket money. Regardless of your motive, as an Airbnb host, just like any landlord, you need to pay income tax on the rental income you earn.
Whether you pay tax on this income and how much tax you pay depends on several factors, including the type of property you rent out, the amount you earn through renting that property, and whether you qualify for any tax relief schemes.
Currently, each taxpayer in the UK has their own personal tax-free allowance—£12,570. This means that in the tax year 2024/2025, you can earn up to £12,570 of tax-free income.
If you already have a full-time job, it’s likely that your tax-free allowance has already been used up. However, if Airbnb is your only source of income, earning less than £12,570 means you won’t have to pay any income tax. If your Airbnb income exceeds this amount, you are responsible for declaring and paying the relevant income tax.
When it comes to the amount of income tax you owe, once personal allowances and tax reliefs are deducted, the general rules apply. This means that your tax rate will be calculated based on the relevant tax rate bands. In England, the basic tax rate is 20%, applicable to income from £12,571 to £50,270. The higher tax rate is 40%, applicable to income from £50,271 to £150,000. Finally, the additional tax rate is 45%, applicable to income of £150,000 and above.
Business Rates
Airbnb hosts who own properties in the UK may be liable for business rates.
In England, any property that is available for rent for 140 days or more per year is classified as a self-catering property and is subject to business rates.
In Wales, any property that is available for rent for 140 days or more per year but actually rented out for 70 days or more needs to pay business rates.
Council Tax
When you rent out your holiday home or investment property on Airbnb for less than 140 days per year, you need to pay council tax, but not business rates.
3. What tax relief opportunities do landlords have?
Rent-a-Room Scheme
The Rent-a-Room Scheme allows you to earn up to £7,500 tax-free each year by renting out furnished rooms in your home. If you share the income with your partner or someone else, the tax-free amount is halved.
In general, if your income is less than £7,500, it is automatically tax-free. This means you don’t need to do anything. If your income exceeds this amount, you must fill out a tax return form. You can then choose to join the scheme and claim your tax-free allowance. You can do this on your tax return form.
Alternatively, you can choose not to join the scheme and instead record your income and expenses on the property page of your tax return.
£1,000 tax-free allowance
Airbnb hosts can receive a £1,000 tax-free short-term rental allowance.
However, you cannot claim both the £1,000 tax-free allowance and the Rent-a-Room Scheme relief on the same income.
It’s best to consult with a qualified accountant about your specific situation, as eligibility may vary depending on your specific circumstances. Note that the rules for rental income still apply as long as you rent out properties other than your main residence.
Capital Gains Tax Relief
In some cases, Airbnb properties may also qualify for capital gains tax relief.
If your property meets the conditions for furnished holiday lettings (FHL) and is a second residence, there are some schemes that can minimise the tax burden.
Business Asset Disposal Relief
Business Asset Disposal Relief, previously known as Entrepreneurs’ Relief, allows individuals selling Airbnb properties to be taxed at a rate of 10% on their gains instead of 18% or 28%.
If you own a furnished holiday home, you can claim capital allowances to reduce your tax bill. For example, with ordinary properties, when you buy furniture like beds and tables, these cannot be deducted as costs for your tax. Only replacement furniture can be, such as when a bed breaks after two years and needs to be replaced.
However, with furnished holiday homes, you can claim capital allowances for any furniture initially purchased.
4. What properties qualify as furnished holiday lettings (FHL)?
A property must meet the following criteria to be classified as furnished holiday lettings (FHL):
The property must be available for rent for at least 210 days a year.
Of those 210 days, the property must be rented out for at least 105 days per year.
The property must be furnished enough to meet normal living needs, and tenants must be allowed to use the furniture provided.
The property must be located in the UK or the European Economic Area (EEA).
It must be let out to holidaymakers rather than just friends and family.
The property must be let on a short-term basis, with no single tenancy exceeding 31 days—except in special or unforeseen circumstances.
