Airbnb Hosting in the UK: Tax Tips, Allowances & What You Must Declare

Thinking of making extra cash by renting out your place on Airbnb? Or maybe you're thinking about buying a property specifically to rent it out as a short-term let? Either way, it’s a great way to bring in some income, but it’s really important to know the tax rules and legal stuff that comes with it. Whether you’re letting out your spare room, your whole house, or investing in a new place with Airbnb in mind, this guide explains what you need to know about tax, HMRC rules, and how to stay on the right side of the law while keeping more of your earnings in your pocket.

Can I Legally Let Out My Property as a Holiday Rental?

Before you hit “list my property,” take a moment to check these key things:

1. Your Mortgage Agreement: If you have a mortgage, your lender might have strict rules about renting out the place. If you break their terms, it could lead to big fines or even your mortgage being called in. Some lenders allow short-term lets, but usually only with permission – and sometimes extra fees.

   Buying a property for Airbnb? Speak to your mortgage advisor first. Not all buy-to-let mortgages allow short-term lets, and you might need a specific holiday let mortgage instead.

2. Leasehold Property? If you’re in a flat or any leasehold property, check the lease. It might say you can’t sublet, or that you need to get approval first.

3. Social Housing or Council Properties: These usually don’t allow subletting – and doing so without permission could land you in serious trouble. Always check and get written consent.

4. Insurance Cover: Standard home insurance probably won’t cover you for Airbnb-style lets. You’ll likely need a special policy for short-term lets or landlords. If you're buying a property for letting, factor this into your running costs.

5. Local Council Rules: Some areas have limits. For example, in London, you can only let your home for up to 90 nights a year without planning permission. Other councils might have similar rules, so check locally. If you're investing in a new area, research this before you buy.

   
   

Am I Self-Employed If I Host on Airbnb? How do I pay tax?

Not quite. Even though it might feel like a small business, the money you make from Airbnb is classed as property income, not self-employed income. That means:

• You don’t have to pay National Insurance

• You don’t need to register as self-employed

• You report your earnings differently to HMRC

That said, you still have to declare what you earn and may have to pay tax – just under a different set of rules.

Will HMRC Know If I Don’t Declare Airbnb Income?

In short, yes, they probably will. Airbnb and other platforms now have to report what you earn to HMRC. You’ll get a summary too, so make sure your records match. If there’s a mismatch or undeclared income, you could face penalties or worse.

How Do I Declare Airbnb Income?

Here’s how it works:

1. Register for Self Assessment on the HMRC website.

2. Keep good records – income, dates, expenses, etc.

3. Fill out your tax return (deadline is 31 January for online filing)

4. Pay what you owe by the same date

If your tax bill is high, you may also need to make a payment on account in July – essentially paying a chunk towards next year’s bill in advance.

How Much Tax Will I Pay?

That depends on your total income across the year:

• You don’t pay tax on the first £12,570 (your Personal Allowance)

• After that, income is taxed at 20%, 40% or 45%, depending on how much you make overall.

The key thing: you only pay tax on your profits, not your total income. So make sure you’re deducting expenses properly (or using the allowance).

Claiming Expenses vs the £1,000 Allowance

When it’s time to do your return, you have a choice:

• Claim the £1,000 tax-free property allowance, or

• Claim your actual expenses (cleaning, insurance, repairs, listing fees, etc.)

Whichever saves you more.

Example:

• You earn £5,000 in rental income

• You spend £600 on expenses

• Better to use the £1,000 allowance

But if you spent £2,000? Go with claiming expenses instead.

What is the Rent a Room Scheme?

If you're renting out a furnished room in the home you live in, the Rent a Room Scheme could be a fantastic way to earn tax-free income. It lets you make up to £7,500 a year without paying any tax on it. Here's how it works in more detail:

Who qualifies?

To use the Rent a Room Scheme:

• You must be letting out part of your main home (not a second property)

• The room must be furnished

• You can be a homeowner or a tenant (but tenants should check their lease and get permission from the landlord)

• The person you're renting to can be a lodger or short-term guest (like on Airbnb)

What income is covered?

• The £7,500 allowance covers rental income only, not extra services (like meals or cleaning)

• If you earn less than £7,500, you don’t even need to include it on your tax return

• If you earn more than £7,500, you can choose to either:

  • Pay tax on your actual profit (income minus expenses), or

  • Just pay tax on the amount above £7,500 and skip claiming expenses

Shared homes

If you share your home with someone (e.g., your spouse or partner) and you both receive income from renting a room, the allowance is split equally... that’s £3,750 each.

What if I qualify for multiple allowances?

You can’t claim the Rent a Room allowance and the £1,000 Property Income Allowance for the same income. You'll need to choose whichever is more beneficial. Rent a Room is usually better if you're renting a room in your own home and your income is under £7,500.

Example:

Let’s say Sarah rents out her spare bedroom for £500 a month. That’s £6,000 for the year. She doesn’t need to declare this to HMRC or pay any tax, as long as she’s opted into the scheme. But if she made £9,000, she’d need to file a tax return and either:

• Pay tax on £1,500 (the amount above the £7,500 allowance), or

• Work out her actual expenses and pay tax on her profit instead

  
  

If your Airbnb setup involves renting just one room in your main home, the Rent a Room Scheme can be a very tax-efficient way to earn.

What’s Section 24 – and Should I Worry About It?

Section 24 is a tax rule that hits landlords by stopping them from deducting mortgage interest from their rental income. It means bigger tax bills, especially for higher-rate taxpayers.

But here’s the good news: it doesn’t apply if your property qualifies as a Furnished Holiday Let (FHL).

What Makes an Airbnb a Furnished Holiday Let?

To count as an FHL (and unlock some decent tax benefits), your property must:

• Be in the UK or EEA

• Be fully furnished

• Be available for letting at least 210 days a year

• Be actually let for at least 105 days to paying guests

Why FHL Status is So Valuable

If your Airbnb qualifies as an FHL, you could:

• Fully deduct mortgage interest

• Claim capital allowances on furniture and fittings

• Use Business Asset Disposal Relief for 10% CGT if you sell

• Get Gift Hold-Over Relief if you transfer the property

• Delay CGT by using Rollover Relief when reinvesting

It’s one of the best ways to reduce your tax bill on property income.

Do I Need to Register for VAT?

If your total Airbnb income hits £90,000 or more over any 12-month period, then yes, you must register for VAT.

You have a few options:

• Add VAT to your nightly price (which might scare off some guests)

• Absorb the VAT into your rate (you pay it, not them)

• Increase your prices slightly to cover part of it

It’s a balancing act between staying competitive and keeping your profits up.

Quick Tips to Make Airbnb Hosting Smoother

• Keep detailed records: income, guests, costs, bookings

• Check your mortgage, lease, and insurance before starting; especially if buying a property to let

• Know your tax deadlines (Self Assessment, VAT if needed)

• Learn about the different reliefs and allowances

• Speak to an accountant to make sure you're claiming everything you can

  
  

Running an Airbnb can be financially rewarding, but it’s not as simple as listing your space and pocketing the cash. If you want to maximise profits, stay compliant, and avoid nasty surprises from HMRC, it pays to get the right advice.

📞 Need Help?

If you’re unsure what you can claim, need help filing your tax return, or want advice tailored to your Airbnb business, we’re here for you.

Visit www.kmaccountancy.co.uk and fill our enquiry form and one of our friendly accountants will be in touch within 24 hours.

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Quick Disclaimer

This info is general guidance and doesn’t replace personalised advice. Always speak to an accountant about your specific situation.