Airbnb has recently announced in that it is providing data for the 2017/18 and 2018/19 tax years to HMRC, identifying people letting out property and their rental income receipts. This is likely to bring a number of renters to HMRC’s attention for the first time, which could create problems if their tax affairs are not up to date.
The tax impact
The people most likely to have failed to declare rent correctly are those who see their room letting as simply a windfall. The good news is that at least in some cases tax reliefs may come to the rescue:
Property income allowance
If your gross income is below the £1,000 allowance for property rental receipts, you have no tax or reporting obligations. It is unlikely that HMRC will bother to enquire into such cases.
If you let furnished residential rooms within your own home and the gross income before expenses is below £7,500 a year, rent-a-room relief is likely to apply. This limit reduces to £3,750 each if more than one person is entitled to relief and it cannot be combined with the property income allowance.
HMRC may well contact renters relying on rent-a-room relief to request evidence of entitlement to the exemption.
Rental income declared
Renters who have already declared their Airbnb income are unlikely to be affected by the information being passed to HMRC.
Understanding the rules
Much like eBay, Airbnb is an example of an online marketplace where technology helps people to engage in business ventures which would have been impractical in the past. This comes with the risk that people not used to dealing with HMRC may not realise that they have a requirement to pay tax.
It’s also easy to miss the fact that if part of a home is solely dedicated to rental, this may restrict availability of capital gains tax main residence relief, thereby creating a tax charge on sale of the family home. HMRC has recently started issuing ‘nudge’ letters to people they believe have failed to disclose property capital gains, and we are likely to see more challenges in this area over time.
Putting the record straight
If you have submitted a 2018/19 tax return without including rental income you can make an amendment up to 31 January 2021 to correct your position without penalty. It is now too late to amend returns for 2017/18 rental income, but if you think you owe tax for this or earlier tax years it would be a good idea to contact HMRC and get your tax affairs in order before HMRC contacts you: penalties for voluntary disclosure of underdeclared tax are generally much lower than those for prompted disclosure.
If the amounts undeclared are substantial, it would be wise to get professional help with a disclosure to make sure that deductions are claimed and penalties are minimised. For more information please contact Andrew Robins or Sarah Saunders.