HM Revenue & Customs has launched a crackdown on the growing short-term rental market, initially targeting around 1,000 homeowners it suspects have not paid enough tax.
Based on information received from online booking platforms such as Airbnb, the UK tax office is sending its first ‘nudge’ letters this month to those it believes have failed to report rental income on their tax returns. self-evaluation. Recipients of the letters were given 30 days to respond or risk a formal investigation into their tax matters.
HMRC’s scrutiny comes as the holiday rental market has grown rapidly in recent years, helped by preferential tax treatment of short-term rentals compared to traditional buy-to-let rentals.
Around 127,000 individuals in the UK declared business ownership for furnished holidays on their personal tax returns in tax year 2019-20, the latest year for which data is available.
Airbnb does not provide a geographic breakdown of rental numbers by country, but the Guardian’s 2020 analysis showed that its active UK listings jumped from 76,000 to 257,000 between April 2016 and January 2020. Airbnb said last year that the typical UK host earned just over £6,000 a year.
“While there are always exceptions, I think the short-term lease tax shortfall is more likely to be accidental than deliberate,” said Stefanie Tremain, partner at accounting firm Blick Rothenberg.
He added that the property income regime is now “very complicated after years of adjustments to the legislation” and HMRC does not accept ignorance of the rules as an excuse.
David Fell, senior analyst at real estate agency Hamptons International, said some traditional buy-to-let investors have moved to vacation rentals because of their “more favorable tax treatment.”
In contrast to the rules for long-term leases, owners of properties designated as vacation homes can benefit from subsidies, including full income tax exemption for mortgage interest deductions and lower capital gains tax on their sale.
Chris Etherington, a partner at accounting firm RSM, said that after the initial campaign, tax authorities could start checking that vacation-furnished homeowners “meet strict rental criteria.”
An Office of Tax Simplification report in November – published shortly before the statutory body’s closure – urged ministers to review the sector’s complex tax regime.
HMRC does not have an estimate of how much tax on the short-term rental market has yet to be paid, but said it was working with online rental platforms “to build a more detailed understanding of the sector and who is operating in it”.
Last summer, the government launched a consultation proposing the introduction of a national cadastre for short-term leases, which could help with tax collection.
HMRC described nudge letters as “routine activity” and added: “We believe our customers want to pay the right amount of tax. . . We are taking steps to help make it as easy as possible for people to settle their taxes.”