Could swapping homes for holidays trigger a tax bill?

06 October 2023

A key plot point of the 2006 film ‘The Holiday’ is that the two female leads swap their homes for the holiday season to nurse their broken hearts. It’s probably fair to assume that earlier drafts of the film’s script did not have Kate Winslet and Cameron Diaz’s characters reconsidering their choice after discovering exchanging homes created a potential tax liability. That said, it wasn’t long before then that George Lucas revealed Star Wars apparently started because of an intergalactic tax dispute, so anything is possible.

As The Holiday nears its 20th anniversary, the concept of home swapping for holidays has seemingly grown in popularity with a variety of different websites offering opportunities to list and view potential homes to swap. Some newspapers have even got in on the action with Guardian Home Exchange, offering the opportunity for members to contact each other and swap homes for an annual membership of £59.

Many of these websites provide useful guidance on points to be aware of ahead of swapping one home for another but the potential tax consequences do not appear to feature in this guidance. The arrangement is clearly marketed as providing free holiday accommodation but that isn’t necessarily the reality of the situation. It could be argued that such a swap represents a simple bartering transaction; that the two families are effectively renting their properties to each other and exchanging a payment-in-kind. Cash may not be paid but the ‘free’ accommodation provided in return to each family has a value.

So, what of the potential tax consequences? A UK property business begins for tax purposes when a taxpayer 'generates income from land', meaning that they are exploiting the land as a source of rent or other receipts.  

In 2016, changes were made to the law to ensure that trading and property income received in a non-monetary form are taken into account when calculating profits for income tax and corporation tax purposes. At the time, it was speculated that these changes were targeted at Airbnb landlords accepting payment in non-cash form, eg being provided with sports tickets or services by the tenant.

Advocates of home swapping might reasonably challenge that there’s no evidence of HMRC seeking to apply the tax law to such arrangements. That may be because taxpayers could potentially benefit from ‘rent a room relief’, provided all the conditions are met, in respect of the value of the provision of the accommodation. Qualifying receipts for ‘rent a room relief’ of up to £7,500 per annum are not taxable. 

That annual amount of ’rent a room relief’ has been frozen at £7,500 since 6 April 2016. This may have been sufficient in the past to cover most home swap arrangements. However, it’s possible that the value of many home swaps could be worth more than that amount now after allowing for the inflation of rents we’ve seen in the market over the last couple of years. 

As it stands, the amount of potential tax at stake could be relatively low compared to the effort required in assessing and collecting it. Indeed, the issue of home swaps may not be on HMRC’s radar at all at the moment. However, if rents for short-term lets continue to rise, home swappers might return in due course to an unwelcome surprise tax liability.