Major events are often accompanied by a boom in the short-term property rental sector. Patterns emerging from this year’s Wimbledon tournament are no different, with some housing prices rising up to £15,000 per week. The average weekly price for a typical two-bedroom flat was around £1,550.
Residents in the Wimbledon area have frequently taken advantage of the surge in tourist traffic, and this is not limited to short-term rentals. There have been many examples of residents letting out parking spaces, and selling refreshments and desserts to visitors.
Major estate agents such as Hamptons have warned however that whilst the business may seem lucrative, in practice it is never ‘easy money’ – for example, those offering short-term rentals will find that the usual safety regulations such as gas and electricity certificate requirements would still apply.
There are two tax allowances for residents wishing to earn some additional income by providing these services. Firstly, there is a ‘trading allowance’ which exempts the first £1,000 of any additional income from providing additional services. Secondly, there is a short-term rental allowance specifically for rental income, which also covers the first £1,000 earned.
As long as the total income gained is lower than the allowances, HMRC will not require a tax return to be filed.
Furthermore, an additional scheme known as ‘Rent-a-Room’ is also applicable to those who are renting out a property while still living there – a tax-free allowance of £7,500 is available, but cannot be used in conjunction with the short-term rental allowance.
HMRC is known to scrutinise market activity around the tournament to ensure that any new tax liabilities have been accounted for. Failure to satisfy any additional tax liabilities could lead to financial penalties, or in some cases, legal action being taken. For individuals under investigation, HMRC can routinely access electronic records which highlight their day-to-day financial activity, including bank accounts and even airline travel history.
Those earning above the thresholds should register for self-assessment – up to 6 months after the end of the relevant tax year – and submit the necessary tax returns. Penalties for late filing can start from £100, rising to up to £1,000 plus 100% of the tax owed. An additional fee of 15% can be levied for late payments.