Rachel de Souza

Written by: Rachel de Souza

Rachel de Souza

Partner

Renting out your home this summer? Don’t forget the taxman!

The holiday season is approaching fast and of course Wimbledon is only a week away. There are always stories in the media about local Wimbledon homeowners who rent their homes for vast sums to tennis players during the tournament. These homeowners are in the same position as anyone renting their home on AirBnB for a short period. You don’t want the taxman as an unexpected guest knocking on your door, so homeowners need to ensure that they get their tax position right.

We are all now familiar with AirBnB style opportunities for renting out our homes. There are two different tax systems that can apply in these circumstances – the general rules regarding the taxation of rental income or the special rules which apply to Furnished Holiday Lettings (FHL). In order to be within FHL rules, the home has to be actually let for at least 105 days per annum, and available to let for 210 days.  

When you qualify for FHL, there are some specific tax breaks, such as business rates applying rather than council tax and certain Capital Gains Tax reliefs that otherwise don’t apply, but the income remains subject to income tax less any business expenses. Given the definition mentioned above, FHL treatment is not going to apply to the occasional renters such as those who only let their homes for a short period to profit from a specific event such as Wimbledon.

For these homeowners, the usual property income rules apply. All rental income must be declared. They can choose to claim up to £1,000 in deductions known as the property allowance, but if they do so, they cannot claim the cost of actual deductions. 

In comparison, any expenses incurred ‘wholly and exclusively’ in the letting can be deducted in full. This would include garden and house maintenance and accountants’ fees. Some financing costs are allowed as a deduction, but not all. 

Don’t miss out on potential tax relief as tax rules change frequently. For example, Rent-a-Room relief allows rental income of up to £7,500 to be received tax free. It was previously announced that this relief was going to be restricted to situations where the owner occupies the property at the same time as the tenant, but this restriction was never introduced.  

Homeowners should also consider whether the rental will affect their ability to claim Principal Private Residence Relief i.e., whether there will be any capital gains tax to pay when they ultimately sell the home. 

In summary, there may be some very attractive opportunities for homeowners to rent out their homes if they live in a holiday hotspot or close to a prestigious sporting event. Homeowners need to remember that any income will be taxable and must be declared on their personal tax return and they should ensure they understand the effect of the tax rules before listing their home for rental.

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