Airbnb Tax Free Cash?

Land Tribunal ruling casts doubt over sub-letting

Since Airbnb was launched in 2009, many have jumped at the opportunity to let their properties to complete strangers and earn themselves some tax-free cash from doing so. This has been made more attractive since the Rent-a-Room threshold was increased from £4,250 to £7,500 from 6th April 2016.

Rent a Room Scheme

The Rent a Room Scheme has been around since 1992 and enables owner-occupiers and tenants to earn up to £7,500 tax-free per tax year from the letting of furnished accommodation in their home. The limit is halved where the person shares the income with their partner or someone else.

To qualify for the relief, the property must have been the individual’s only or main residence at some time during the letting period in each relevant tax year. If part of the property is let unfurnished in the same tax year, then relief cannot be claimed.

Rents to be taken into account for the relief are not only payment for the accommodation but also payments for related goods and services, such as meals, cleaning, laundry etc.

Only ordinary lettings of living accommodation in the taxpayer’s own home qualify for the scheme. It does not apply to rooms let as an office or for other business purposes. Nor can the scheme be used for homes converted into separate flats.

Whilst not relevant to tax, HMRC’s Property Income Manual does warn people to check whether:

1. Their lease allows them to take in a lodger, where they rent their home, or
2. If they have a mortgage on their home, whether their lender minds them taking in a lodger.

It is point (a) that some may not have fully considered in their haste to lay their hands on the tax-free cash and it is this very point that was at the centre of a recent Upper Lands Tribunal Chamber hearing.

Iveta Nemcova v Fairfield Rents Ltd

Fairfield Rents Ltd is the owner of a residential block in Enfield in which Ms Nemcova leased a one-bedroom first floor flat.

The lease provided for the flat not to be used for any purpose whatsoever other than as a private residence. However, Ms Nemcova granted a series of short-term lettings of her flat and advertised its availability on the internet. Although the flat continued to be her main residence it had recently remained empty for 75% of the year as she felt intimidated by her neighbours. She only let the flat out for about 90 days a year and mostly to business visitors working in London rather than holiday lets. Most currently, Ms Nemcova had stayed in the flat about three or four days a week, staying with her boyfriend on the nights she was absent. During the past 12 months she had let the flat out on about seven separate occasions.

Ms Nemcova had set up a website advertising her and her partner’s homes as alternatives to hotels and she used the services of a reservation system website, which cascaded details of her availability of her flat to several other websites.

The landlord claimed that Ms Nemcova had broken the terms of her covenant by sub-letting her flat and it had therefore been used for more than a private residence. The question for the Tribunal to consider was not whether the premises were being used as the occupier’s home but whether they were being used as a private residence.

It was not stipulated in the lease that the premises were to be used as the private residence of the lessee/occupier but as a private residence, which was most significant.

His Honour Judge Stuart Bridge stated that a property may remain a private residence whether it is occupied by a tenant of the lessee who pays rent or by a friend of the lessee who is allowed to live there rent free as a philanthropic gesture. Neither did the judge consider that the reason the occupier is there is decisive as a person may take the accommodation offered while they are working in the area or while they are on holiday. In either case, the underlying motive for the occupation does not necessarily mean that the occupier is not using the flat as a private residence.

It was the duration of the occupier’s occupation that was of relevance. The judge considered that for a property to be used as the occupier’s private residence, there must be a degree of permanence going beyond being there for a weekend or a few nights in the week. Occupying a property for a few days then leaving did not amount to using the property as a private residence. As such, the landlord won the dispute.