With more and more travellers opting for vacation rental accommodation, cities, parishes, districts, counties, states, and countries across the world are opting to regulate short term holiday lets including Airbnb vacation rentals operating within their borders. Holiday lets operating in London, England are also subject to specific laws, regulations, and taxes.
The financial capital of the UK, the City of London is a city, ceremonial county, and local government district 2 sq.mi. in area that is known as ‘the Square Mile’. It falls under the jurisdiction of Greater London. However, it also has its own government and mayor – Lord Mayor of London.
Greater London is the capital of the UK. It is also a county that incorporates 32 boroughs as well as the City of London. It governs via the Greater London Authority (GLA), which consists of the Greater London Assembly and the Mayor of London.
Under many circumstances, short term vacation rentals are considered to be a change of use of the home and hosts are required to obtain planning permission in order to operate. The permit changes the purpose of the property from residential to commercial, allowing for it to be let for a longer period of time.
Hosts renting out a part of their home as a short let do not require a permit but are expected to live on the property during the rental.
Hosts renting out entire homes as a short let must obtain planning permission prior in order to operate. They are exempted from this requirement if they only rent their home for a total of 90 days or less in a year and are categorised as temporary sleeping accommodation.
Because approval of permit applications can take weeks, it is recommended that hosts obtain permission long before the 90-day limit is up.
Those who do not obtain necessary permission are liable for large fines.
Long term renters can also host short let accommodations but must first obtain permission from their landlord.
If the property listing is a leasehold, the host must get permission from the freeholder.
Hosts who have a mortgage must obtain permission from the mortgage provider. (A residential mortgage holder may have to switch to a buy-to-let mortgage to qualify.)
Hosts must also check with their insurance provider or risk having their home insurance become invalid due to the change of use of the property.
Obtain a gas safety certificate for the property
Carry out a fire risk assessment annually
Make sure a smoke detector and a carbon monoxide alarm are installed in the property.
Let their guests know important information like where the trash bins should be placed and when, what items can be recycled and their management, noise level, and behavioural expectations in the area.
It is advisable for Airbnb and other self-catering rental hosts in London to maintain a log of visitors and other activity in their property which can act as documentary evidence in case of a serious issue later on.
Income earned from hosting a short term holiday let accommodation, like other forms of income, is subject to tax. However the tax treatment can differ depending on the type of property you are renting. That is if you are:
Letting one or more furnished rooms in the property in which you reside
Renting a different buy-to-let property
If you rent a furnished room or rooms within your main residence you can qualify for the Rent A Room scheme. This applies even if you don’t own the house or flat you reside in and are letting for the short term. However you don’t qualify if you rent out the space to be used as an office, even if it is for the short term.
The rent a room scheme provides you with a tax-free allowance of £7,500.
The allowance is on gross receipts (prior to deducting expenses) rather than profits.
If your gross receipts amount to less than £7,500 in a tax year, you are not obligated to even declare it as a tax return as the income is exempt automatically.
If two people receive income from letting the same property, the tax allowance for each person is halved, amounting to £3,750.
If your gross receipts are more than £7,500 you can choose to simply pay tax on the net profit from your rental depending on what suits you better.
If you are renting a separate property from your primary residence as a short term holiday let, you don’t qualify for the rent a room scheme. However, you may qualify as a furnished holiday letting which offers its own set of tax and other advantages.
To be eligible as furnished holiday letting, your short let must be:
Located in the UK
Available for letting for at least 210 days in the tax year
Have actually been let for at least 105 days in the tax year
Advantages stemming from being eligible to be furnished holiday letting include:
Capital gains tax relief such as Entrepreneurs’ Relief, Rollover Relief, Gift Hold Over Relief, etc
Because rental profits are considered earned income, you can pay more into your pension scheme
Capital allowances for furniture, fixtures, and equipment in the property you are renting out
If your self catering rental does not qualify as a furnished holiday letting, it will be subject to Section 24 interest relief restriction. This means you cannot claim relief on mortgage interest if you are a higher rate taxpayer.
If the total income from your short term holiday let accommodation exceeds £85,000, you will have to charge VAT at 20% from your guests. VAT is based on the total fee incurred by the guest including booking, cleaning, etc.
You will need to register for VAT and file regular VAT returns.
However there are some exceptions. For example, if a guest stays for over 28 days, you may be exempt from charging VAT. Because of the complicated rules governing VAT, it is always advisable to consult with a property accountant.
If your short term holiday let accommodation property is rented out for less than 140 days in the tax year, it precludes the host from paying business rates. Rather, you must pay council tax for the number of nights the house has been let.
Airbnb sets limits of 90 days a year for listings of entire homes in London. Once a listing has received 90 nights of bookings for the calendar year, the system automatically blocks the listing from being booked for dates in the rest of the year. A counter on the Manage listing page will display the number of nights the listing has been booked for that calendar year. It will refresh at the beginning of the calendar year.
Hosts who have obtained planning permission to list their entire homes for longer than 90 days a year can ask Airbnb to remove the limitation by claiming an exemption on the Regulations tab. Once the process is completed, the tab will say “The 90 night limit has been removed from your listing”.
A new government review looking at the impact of increases in short term and holiday lets in England may result in new rules governing Airbnb. Measures being considered include conducting physical inspections to ensure compliance with health and safety, noise, and antisocial behavior regulations; spot checks for concerns such as gas safety; and hosts registering on a self-certification scheme prior to commencing operations.