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Could landlords make more money renting their property through Airbnb?

2-minute read

Could landlords make more money renting their property through Airbnb?
Isabella Lowenthal-Isaacs

Isabella Lowenthal-Isaacs

11 October 2017

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It may be cheaper to rent your property on sites like Airbnb because of changes to tax rules for buy-to-let landlords.

An increasing number of landlords are finding that Airbnb and other similar platforms could be more lucrative than the standard longer tenancies model - despite previous warnings that landlords could be losing out to Airbnb sublets.

Recent research from the Residential Landlords Association indicates that this could be due to the ongoing rule changes facing traditional landlords.

  • Potential problems and risks when renting on Airbnb
  • Is buy-to-let worth it?
  • Buy-to-let mortgage rules getting tougher from September 2017
  • What type of landlord insurance do I need?

Why are landlords moving towards short-term lets?

The RLA published a report that shows that one in three landlords are moving towards short-term lets because of changes in mortgage interest relief.

Previously, landlords were able to deduct mortgage interest, along with other costs, from their annual tax returns.

New legislation will see annual reductions in mortgage interest relief for three years until the scheme is fully implemented.

By 2020/1 all financing costs for buy-to-let properties will be taxed at a basic rate.

An incentive for ‘micro-entrepreneurs?’

However, tax incentives could mean good news for those who rent on a short-term basis.

‘Micro-entrepreneurs’ who use companies like Airbnb receive a £1,000 allowance from the government. Although this ‘perk’ was announced as part of the 2016 Finance Bill, it was left out at the last-minute, before reappearing this year.

Should you join the trend?

The Residential Landlords Association shows that the number of buy-to-let investors renting on Airbnb has seen a 54% increase between February 2016 and March 2017.

This may be because short-term lets, on average, yield a higher rent. Current data from Zoopla reveals that the average one-bed flat in London is let for £1,618 a month, while a single private room on Airbnb could make an estimated £1632 per month.

And a property rented out on Airbnb in its entirety could return as much as £2700 a month.

The rent-a-room scheme also means the first £7,500 earned from letting out a furnished room, guesthouse, or bed and breakfast is tax free. This tax break also applies to short-term lettings such as those on Airbnb.

It’s not all plain-sailing

Although Airbnb and similar sites rent better than long-term lets, landlords should consider the cons.

Unfortunately, the Spring Budget suggested the rent-a-room tax break would be removed for short-term lettings, resulting in losses of up to £3,300 a year for Airbnb hosts.

Some sites have restrictions on the time you can let a property for. Airbnb gives a 90 day maximum on all lets.

But perhaps most importantly, landlords need to consider the likelihood of filling their properties for long enough periods to pay the bills. According to the Telegraph, the average short-term letting on Airbnb earns a landlord just £2,000 a year - less than a fifth of the average UK income from rent.

Landlords therefore need to think carefully about whether the impact of new buy-to-let tax rules is dramatic enough to push them towards a short-term letting model - especially if the rent-a-room incentive is scrapped.

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