Short lets tax change this week just the first of many in 2024

Airbnb and other short let platforms are from this week required to send data on their clients’ earnings to HMRC.

And a property tax specialist says this could leave many casual landlords exposed - especially if their earnings are exceeding the Rent A Room threshold. 

And he warns that for many Britons who might be choosing to rent a room out to a lodger on a casual basis, they might not even be aware what tax they should pay or what to do if they exceed the threshold.

The Rent A Room tax exemption is automatically applied to anyone earning less than £7,500 from renting a furnished room in their home, which equates to charging £625 per month for a room or £144 a week. This is halved if the person shares the income with a partner or someone else.

Mike Parkes, technical director at GoSimpleTax, says: “Whilst renting out a room can be a great way to earn an extra income, it’s important for those acting as landlords - even on a casual basis - understand that they still need to pay tax on what they earn. 

“For many it will be an automatic exemption as they earn less than the Government’s threshold of £7,500. Yet many might not realise  they need to declare this income if it breaches the Government’s threshold of £7,500. This can be easy to do if you’re charging more than £625 per month, and many won’t realise that they need to be liable for tax and income payments to HMRC if they earn above the limit set by the Government.

“Putting money aside for tax can mean these landlords will be prepared for when they complete a self assessment tax return, which is due by January 31. Having control of finances, including paying tax and following HMRC guidance, is an important part of being a landlord and that also means being ready for the January 31 deadline.”

He continues: “It can seem daunting to pay tax if money isn’t set aside but there are always options. The first is to get an up to date calculation of what is owed and then to understand what you do have to put towards it. The next step is to speak to HMRC and discuss options like a payment plan, which can mean you pay the tax owed but across a feasible and manageable monthly payment plan.”

Meanwhile, potential changes to other property-related taxes continue to dominate debate as the New Year begins.

Sarah Coles, head of personal finance at business consultancy Hargreaves Lansdown, says: “The first tax cut of 2024 will hit next weekend, and there’s the chance it won’t be the last. With a Budget on March 6, and a general election looming, several cuts are thought to be in the running.”

She is referring to the National Insurance cut: from 6 January, Class 1 NICs, which are paid on earnings between £12,570 and £50,270, will be cut by two per cent  from 12 to 10 per cent. It will cut £149 off the tax bill of someone earning £20,000, £349 for someone making £30,000, £549 for someone making £40,000, £749 for someone making £50,000 and £754 for anyone earning over the higher rate tax threshold.

Self-employed people will have to wait a little longer, but Class 2 National Insurance contributions will be axed altogether at the start of the new tax year in April, saving an average of £186 a year. The main rate of National Insurance contributions for self-employed people will also be cut by one percentage point, from nine to eight per cent. This applies to profits of between £12,570 and £50,270. This will cut an average of £117 in tax for basic rate taxpayers, £322 for those on the higher rate, and £358 for additional rate taxpayers.

In terms of the March Budget, Coles continues: “The inheritance tax rate could be cut to 20 per cent, which would be a popular idea among the growing number of people whose estates are set to breach the allowances. Without any changes, the percentage of estates set to pay the tax could rise from four to seven per cent by 2022/23. However, it’s not a progressive tax cut, and while it would improve the transfer of wealth to younger generations at the time of death, it would do nothing to encourage people to support their families with gifts during their lifetimes, when they may need it most.

“… Stamp Duty has also been considered for a potential cut. However, this is complicated by the fact that we’re currently in the middle of a temporary stamp duty cut - set to end in 2025. The government would have to consider making the cut permanent as part of the change, which would mean factoring more costs in. The government is also said to be considering alternative approaches to ease the path of first time buyers.”