Staycations – letting a property or a room

During the easing of lockdown restrictions over the summer months in 2020 we became much more familiar with the term staycation as many took a break in the UK. Although the long term outlook this year may be more positive, the situation is a changing one, and many will decide that holidaying in the UK in 2021 is the sensible option for them.

The ability to find that perfect place to take a holiday or short break has very much been helped by websites such as Airbnb (other websites are available!), which take away a lot of the hassle and cost for those looking to let.

It may be that receiving some extra income will be useful, however you may not want to go as far as setting up a formal holiday let business, which comes with the need to comply with the furnished holiday letting requirements to obtain the associated tax benefits. If a more casual approach is more your thing, letting a property or room on an ad hoc basis could utilise one of the tax free allowances available, which also help simplify the records you need to maintain.

If the gross rents you receive in a tax year are not more than £1,000, the income will be covered by the tax free property allowance if you make an election to claim it. If the income exceeds this figure, the allowance can be claimed as a deduction against the income leaving the balance subject to tax, depending upon your overall tax position. You may have unused personal allowance to set against the excess. Alternatively, if expenses are likely to be higher than the allowance, the actual expenses incurred can be deducted instead.

If a property is jointly owned, the property allowance is available to each owner.

Care must be taken however where you let other property as your total receipts from all property businesses need to be considered when deciding whether to claim the allowance.

Rather than let a whole property, you may decide to let a room or rooms in your home while you continue to live there. Income received in this way can be covered by rent a room relief, which covers gross rents of up to £7,500 per annum. If a property is owned by more than one person, the relief is reduced to £3,750 for each owner, irrespective of the number of owners.

As with the property allowance, when the rent exceeds £7,500, the allowance can be claimed as a deduction against the rent or alternatively actual expenditure can be claimed.

It is not possible to claim both allowances against the same source of income.

If the income you generate is significant and likely to be regular and long term, some thought should be given as to whether the furnished holiday letting requirements are met and actual expenses should be claimed. In addition VAT and business rates may need to be a considered.

If you would like to discuss the topics explored in this article then please get in touch with us.