Allowable rental expenses on Airbnb

glenjan

Hi everyone,
I'm hoping to buy and live in a 2-bed central flat from Jan 2017 and am wondering whether I can make enough money to help pay the mortgage (likely £539 per month) via occasionally letting through AirBnB. I would rather not have a live-in lodger.

I know that MetroBank offers airbnb permissive mortgages for up to 90 days a year. And I understand the rent-a-room allowance (£7500) will probably be scrapped for Airbnb hosts for next financial year. Therefore I am trying to calculate whether the rental income will be worth it when taxed on this income from April 2018.

When rental income is taxed I know we are allowed certain deductible expenses such as mortgage interest, council tax and water charges.

Can anyone tell me how HMRC works these deductible expenses out? Say my rental income from airbnb was £5400 and my annual mortgage interest was £2800 & council tax was £1,000 - how much of the rental income would be taxed? Do I subtract 75% of the mortgage interest off the rental income (as LITRG suggests)?

As both expenses (council tax & mortgage interest) aren't solely incurred for renting out the property (they are also incurred so that I can live in the property too) should only a proportion of these be used for a tax break? And if so is it 50% of these expenses or just for the days I had an airbnb guest stay with me (90/ 365)? Or a combination of both (90/365/2)

Thanks for reading in advanced - any help gratefully received.
Glen

dimbo61

Council tax and water rates/water meter are not allowable expenses
You are second guessing what might happen in the budget
You can offset the cost of a good accountant

glenjan

Hi
Thanks for the reply. I suppose I'm second guessing but MSE says it's likely given the gov said the tax break was designed to free up spare rooms on a long term basis which isn't Airbnb.

And I've read on HMRC (updated April 2017) that water rates & council tax & gas & electricity are allowable expenses. Are you saying they're wrong?

Thanks for the tip about the accountant. I'm scrimping for the deposit right now but I'll see.

bowlhead99

In terms of the expenses like mortgage etc, one standard way to allocate it would be by apportioning what fraction of the floor space of the flat is for the lodger's exclusive use because that's the part of your property which is being used for your 'letting' business. For example if you have a 1000 ft sq flat, and you give the lodger/ AirBnB guest a bedroom (12 ft by 9ft6) and their own en-suite (7ft by 5ft) that's 149 ft sq which is about 15% of the property. You might also take the more aggressive view that the lodger staying with you is also using 50% of the common areas of the property (kitchen and living room) even though it doesn't stop you using them. HMRC could probably confirm what they accept.

If you only have a lodger 90/365ths of the year (albeit spread out over the year) it would be pretty bold to claim the whole year's worth of relief as business expenses because presumably the rooms are available for your use (living, storage, friends and family visiting every so often) the other three quarters of the year, and not for the AirBnB guest who only has the right to be there on certain days.

So if you are successful at getting an AirBnB room mate for up to 90 days you'd be looking at perhaps only being able to claim up to a quarter (ie time related) of some fraction of the direct expenses and maintenance - not a quarter of all your costs. You yourself are the main beneficiary of those costs. So, you will probably have some chunky taxable profits. If you charge the lodger additional fees such as cleaning etc, that counts as taxable income too. Also remember that you might be a 40% taxpayer on the gross income but the government only want to allow you to claim relief at 20% on mortgage interest as part of their crackdown on tax relief on profits made by residential landlords.

With the relatively low amounts involved you would generally find the rent-a-room relief, where you don't track expenses at all and just pay tax on any income over the limit, is the more useful way to do it, assuming that method is still available in future years.