This summer will be your first stab at the Airbnb market. You’ve read a lot about the various alternatives for tax deductions and allowances you can claim, but which are open to you and which can save you the most tax?

Letting income isn’t all the same

Airbnb style property letting has become popular in all areas of the country. Even traditional holiday home landlords are getting in on the act by advertising their properties through Airbnb and similar marketplaces.

You might think that the income tax position for every such landlord would be the same, but it’s not.

Type of letting

A key factor which determines the tax deductions and allowances you’re entitled to is whether the letting can be categorised as a business (a furnished holiday let (FHL)), instead of just rental income. To qualify as an FHL you must make it available for letting and actually let it for a minimum number of days each year (see The next step ).

Tip 1. If the letting is on the cusp of meeting the FHL conditions, it’s worth making the extra effort to ensure that it does. A wider range of deductions is available compared to those for plain rental income. For example, interest and other finance costs are subject to restrictions for plain rental income but not for FHLs. There are also capital gains tax and inheritance tax advantages to FHL status.

Tip 2. FHL status can apply where you let all or part of your home or a separate property.

Rent-a-room relief

Where you let part or all of your home while you’re temporarily absent, rent you receive will be tax exempt if the income you receive is no more than £7,500 ( yr.19, iss.15, pg.8 , see The next step ). If you own the property jointly with one or more other persons you’re each entitled to half the exemption, i.e. £3,750 each. If the total rental income exceeds £7,500 you can choose to deduct either the actual letting-related costs or the rent-a-room relief amount.

Opting in or out

You can choose between using or not using rent-a-room relief from year to year depending on which is more tax efficient, but you’ll need to make an election (see The next step ). For example, if your expenses exceed your income, i.e. you make a loss, for a tax year, opting out of rent-a-room relief will generally be more tax efficient because the loss can be used to reduce taxable income from other rental properties in the same or later years.

Low rent

There’s another special tax allowance for rental income specifically for anyone who receives small amounts of rental income called the property allowance. It works, with minor differences, in a similar way to rent-a-room relief but is only £1,000 rather than £7,500 and can be claimed only where rent-a-room relief or FHL status doesn’t apply ( yr.18, iss.1, pg.4 , see The next step ).our time.