An increasing number of landlords are turning away from long-term rentals in favour of using Airbnb and other platforms to let out their properties for holiday and short-term lets, new research has found.
The trend is being driven by higher income tax many landlords face under a new regime being phased in over the next four years.
According to research from the Residential Landlords Association, published in August, the number of properties being rented out on Airbnb in their entirety increased by 54pc between February 2016 and March 2017.
From the RLA's sample of member landlords, 7pc reported they had now started to offer their properties on a short term basis using Airbnb or a similar platform which they would have previously let in the private rented sector to longer-term tenants.
Using the latest figures from HMRC for the number of unincorporated landlords that at a minimum 133,000 landlords are moving from the private rented sector to shorter- term lets.
Why the shift?
Buy-to-let has become less profitable since the Government introduced tougher tax rules. The RLA said one in three landlords said they were focusing more on short term lets because of the changes in mortgage interest relief.
Up until April this year landlords were able to deduct mortgage interest, along with other costs, before working out their taxable profit.
However, this relief will be reduced annually until 2020/21 when the scheme is fully implemented. In three years none of the interest will be tax deductible and all financing costs associated with the buy-to-let property will be taxed at a basic rate tax.
At the same time the Government is offering tax-perks to those renting out their home on a short term basis.
It announced an £1,000 allowance to "micro entrepreneurs" who let out their properties on platforms such as Airbnb or sell items online in the 2016 Budget. This was supposed to be introduced in April 2017.
However, the Government left the tax perks out of the Finance Bill, which would have seen the measures written into law, as it rushed to get it finished ahead of the election on June 8.
It has since suggested it could bring it back to form part of the Finance Bill due to published in Autumn.
Can you make more on Airbnb?
Short-term lets are generally higher - but the downside is that the property require more management and the likelihood of vacant periods is greater.
According to current data from Zoopla, the average one-bed flat in London is let for £1,618 a month, or £376 a week. Airbnb says those who let out their entire home for a week could earn £630 a week. However, this could include larger properties.
At the time of writing, a one-bedroom flat in Canary Wharf, in the city, was listed for £80 a night, or £560 for the week. A two-bed flat in Shoreditch, a trendy area of east London was listed for £137 a night, or £959 a week.
Telegraph Money obtained data from Zoopla, which lists properties to buy and rent, and Airbnb to show the difference in the price of a private rental and a short-term let. Below is the chart:
You wouldn't be able to rent out your property full time on Airbnb - 90 days maximum are the rules - but you could use other platforms.
However, there is not the guarantee of a tenant, and you may have to account for void periods.
Income earned from Airbnb lets is taxed at your marginal rate.
Rent-a-room relief up to £7,500 a year is available to both live-in landlords taking in a lodger and Airbnb hosts.
However, this could all change following a paragraph buried in the spring Budget document suggesting the “rent-a-room” taxbreak would be removed for short-term letting. This would result in losses of £400 to £3,300 a year for Airbnb hosts.
The Government said it “will consult on proposals” to “align the relief more closely with its intended purpose, to increase supply of affordable long-term lodgings”.
Mortgaged landlords who use Airbnb and other sites for short-term lets will be able to offset their interest costs if they meet the criteria for a "furnished holiday let". The basic restriction here is that tenant stays must not exceed set durations.