Fine and jail warning for HMRC holiday crackdown

Personal finance experts have warned people they could face hefty fines or even jail time if they don’t comply with the new holiday rental rules. Tax expert Andy Wood says HMRC has already opened thousands of investigations.

He said: “HMRC has opened nearly 2,000 investigations into landlords who rent out through Airbnb or other short-let platforms. The number of tax inquiries has increased significantly, rising from 95 in 2021-22 to 2,000 in 2023-24.

“This twenty-fold increase indicates that the tax authorities are paying much more attention to people’s tax situations and conducting more investigations accordingly.

“In the previous year, the number of inquiries was 400, so it is clear that the scrutiny of taxpayers is increasing rapidly. Given the heightened scrutiny from tax authorities, it is important that taxpayers ensure they meet their tax obligations.”

Andy, from Tax Degens, said: “While HMRC pays particular attention to unreported rental income, landlords should report their earnings accurately to avoid penalties of up to 30% of tax owed. Understanding the tax rules for Airbnb hosting is important for hosts. The Room to Let Scheme allows a tax-free allowance of up to £7,500 a year for letting rooms in your main home, but different rules apply to those who rent separate properties.

“Landlords should calculate their taxable income by deducting allowable expenses, such as property insurance and maintenance costs, from their total rental income. It is important to only claim legitimate expenses that can be supported by evidence to avoid problems during tax audits.

“Failure to declare rental income can lead to serious consequences, including large fines or even imprisonment in extreme cases. Property owners must meet their tax obligations to avoid these outcomes. This includes short-term rental hosts on platforms such as Airbnb, subject to the same tax. rules as traditional owners.

“Landlords should register for self-assessment with HMRC and keep accurate records of rental income and expenditure. Seeking advice from tax professionals or accountants is highly recommended to ensure compliance with tax laws, particularly for vacation rental income.

“It is important for landlords to understand allowable expenses as they significantly affect the taxable income from rental properties. Allowable expenses include various costs such as mortgage interest, utilities and advertising, but it is important to distinguish between allowable and non-allowable expenses. For example, costs related to property improvements or personal use are not allowed and cannot be deducted.

“A common misconception is that minimum rental activity does not require reporting to HMRC. In fact, all rental income must be reported, regardless of how often the properties are rented out.

“Another common assumption is that income from platforms like Airbnb does not need to be reported unless there is official documentation such as a 1099. However, this income is still taxable and must be reported. Similarly, accepting cash payments does not relieve owners of their tax responsibilities; all income must be accurately declared’.