Standard residential lets (e.g., 6-month plus ASTs) are VAT exempt, but the rules for short-term lets and holiday lets are plus VAT at 20% if the landlord is VAT registered.
Our VAT Director, Richard Collier, has summarised the key considerations: –
The full rate of 20% VAT now applies again to “holiday lets”; the temporarily reduced rate ended on 31 March 2022 (having been 5% from 15 July 2021 to 30 September 2021 and then 12.5% to 31 March 2022). For “holiday lets” read short-term lets; essentially the property lets are treated as akin to hotel stays for VAT, with some important differences. If UK Airbnb income exceeds the £85,000 VAT registration threshold, landlords will (or should) be VAT registered. Late registration incurs VAT assessments and penalties. Two subtle points arise here when calculating and relying on this £85,000 limit.
An individual owning the property will need to add Airbnb income to consultancy and other trading income and this is frequently missed. (The reverse also applies; an individual’s property income is often missed when reviewing a VAT registration liability for personal trading income). Ringfencing Airbnb properties separately in one or more corporate entities is possible but carries other tax and stamp duty implications, not least of which are the VAT rules preventing disaggregation/artificial separation of businesses to avoid VAT registration.
Non-resident landlords are not protected by the £85,000 threshold. Their VAT registration threshold is nil, so any Airbnb income triggers a registration liability. An EU Court of Justice case originating in Austria in relation to a German resident owning property in Austria (Ingrid Schmelz v Finanzamt Waldviertel) established this point. Whilst we have left the EU, this VAT principle continues in the UK. Offshore landlords who also own property in the EU should review their exposure locally.
VAT registration increases prices but also permits VAT recovery on costs. Construction, extensions, repairs and refurbishments should all be undertaken with VAT in mind; a 20% cost saving should be achievable but might be lost if left too late. A focus on the customer base can also be worthwhile; if city-centre properties are rented to businesses for their employees or directors, VAT may be recoverable by them; they will need, and appreciate, correctly addressed VAT invoices.
Further complexities can arise within the property sphere in respect of agency arrangements, particularly regarding booking agents, managing agents and online portals. Determining the party responsible for accounting for VAT on different amounts and charges can be challenging, and care in completing VAT returns is needed.
As with all property matters, prior advice is recommended. The high values involved, and the tax and VAT complexity generated requires careful consideration.
Our team of VAT and property tax specialists have a detailed understanding of the possibilities and pitfalls of property VAT and can provide a range of advisory and compliance services. For flexible and cost-effective advice regarding VAT or any other taxes on property, please contact us to discuss in further detail.
Senior VAT Consultant