By Connor Smith, Accountant at Hive Business.
With the passing of the most recent Budget, the talking point was undoubtedly the ‘white van man’ tax and the uproar that followed. However, much like the sneaky loophole in the Conservative party manifesto that allowed the proposed hike, the devil is in the detail.
Behind the mainstream media scenes, the Government are going after Airbnb.
Airbnb, the global hospitality giant and pioneer of the sharing economy, was first launched in 2008 as Airbed and Breakfast. The brainchild of two roommates who joked about the prospect of throwing an air mattress on the floor of their San Francisco apartment and renting it out as a bed and breakfast to help them pay their rent. By June 2012, the total number of bookings had risen to 10 million.
That’s a lot of airbeds on floors!
And the service shows no signs of slowing. In London alone, the number of properties listed on the website has risen by almost 40,000 in the last 2 years. However, legal clashes with Governments all over the world, illegal subletting of rental properties and complaints of discrimination from customers, the company isn’t without its bruises.
And now, it appears the UK Government are ready for their turn in the ring. Long term rentals in some London districts have fallen over 5% in the year to February 2017, and the Government are linking this directly to the increasing ease and attractiveness of short term letting. London mayor Sadiq Khan has stepped up his rhetoric further, engaging with lawmakers in an attempt to slap red tape galore over the sharing economy. It would appear that the Government are being bitten by their own initiative – the Rent a Room Relief. Originally introduced in 1992, the relief was originally intended to reward homeowners lending a helping hand to those looking for cheap accommodation. Receiving a boost in 2015, the government redesigned the scheme to further target the age of extortionate renting.The relief provides people with the opportunity to earn some tax free cash by renting out a spare room in their home, with the current allowance set at £7,500 of income that can be received without even having to be declared in a tax return. Good news for young people just looking for a room to commute out of – right?
Wannabe hosts also thought it was a good idea. Turns out, that family with the spare room in the area you work, just got told by the neighbours that if they spruce it up a little, they can rent it out short term on Airbnb for twice the price of a long let and just invite someone in when they feel like having some extra cash to treat themselves. News of this little tax free trick spreads, and suddenly you have whole families squashed into the lean-to of their Wimbledon property and renting the main house out for an arm and a leg every time the Williams sisters come to town. Now you have a Government with mud on their face, as their solution to sky high rents is pushing them even more skyward.
The Government’s mastermind plan to fix this problem? Well, they don’t really know. We have little more than a tease at the moment from the Government’s budget notes on the matter; their musings concluding that they aim to ensure the relief is “better targeted to support longer-term lettings.”
It could be that they decide to bring their favourite punching bag into the debate – higher and additional rate tax payers. Bring the phrases ‘tax relief’ and ‘higher rate tax payer’ together and all of a sudden HMRC’s shackles are raised; they like to assume everyone paying these rates is living well within their means, infuriated at the thought of them earning some extra pocket money tax free. By restricting the tax relief to basic rate earners only, the government could take some of the shine off wealthier individuals putting their London tube zone spare room on Airbnb at high rates, and encourage more long term, low cost rentals.
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