Property

The budget has a hidden sting in the tail for Airbnb homeowners

By Oliver Smith 10 March 2017
Summary

It's not just the self-employed under fire.

The property market was left well alone on Wednesday as Philip Hammond’s Spring Budget instead attacked Britain’s millions of self-employed entrepreneurs.

Even estate agents dodged another bullet as the Government’s promised plan to scrap lettings fees remains a distant dream.

But not everyone got off scot free.

Tens of thousands of homeowners who rent out their spare rooms through Airbnb could soon be hit by a bigger tax bills

Rent-a-room

Hidden in the middle of Hammond’s 64-page Budget is a single line that “the government will consult on proposals to redesign rent-a-room relief” with the hint that short-term Airbnb listings may be excluded in the future.

It’s a decision that could leave Airbnb homeowners with a nasty surprise come tax season.

Currently the rent-a-room allowance is a tax free allowance for anyone to rent out a spare room, either through a private rental or a platform like Airbnb, without paying tax on the first £7,500 they earn.

Overall it’s been a huge success, incentivising people to rent spare rooms that would otherwise remain vacant.

And, because the allowance breaks down to £500 a month, these rooms are often reasonably priced in places like London as many homeowners simply charge renters at or around that level.

Airbnb under fire

There’s just one problem, tens of thousands of homeowners aren’t using this tax relief for long-term rentals, but instead as a tax break on their Airbnb business putting up tourists for the weekend at a premium price.

As the Government says the intention of rent-a-room was to “increase supply of affordable long-term lodgings”, not bolster people’s Airbnb profits.

If scrapped, a higher-rate taxpayer on Airbnb earning the full £7,500 allowance would be hit with a £2,400 tax bill at the end of the year, which may be a big enough sting to dissuade many from letting a stranger rent part of their home.

Back as intended

The news will be music to the ears of hoteliers who have long argued that Airbnb listings either are unfairly benefitting from tax relief like rent-a-room or avoiding paying tax on what has essentially become a hotel-like business operation.

Finally, there’s no timeline yet on when any consultation will start or when any final changes will be announced, although the Chancellor’s first Autumn Budget later this year is a good guess.

Britain’s rent-a-room scheme has been a great initiative to help get more quality, affordable rooms onto the market for people to live in.

It should never have really been a tax-break for Airbnb upstarts and the holidaymakers so, while certainly disappointing for many, removing the Airbnb element is the right way to go.