The tax Airbnb hosts must know to avoid a nasty shock

One of the success stories of the sharing economy has been Airbnb, which matches private accommodation to potential renters. But getting involved in letting part of your home through Airbnb can deliver a nasty, and little understood, tax sting.

Broadly, if you own an investment property, you'll pay capital gains tax (CGT) when you dispose of it based on your profit.

This, in simple terms, is the difference between the amount you sold it for and the amount you paid for it. With property prices having risen rapidly in recent years, it's easy to make substantial profits and equally easy to forget that the tax office will want a slice of those profits.

In most cases, when you sell your private residence the sale is free of CGT. However, if you have used part of the property for income-earning activities - like renting it out through Airbnb - part of the gain will be taxable.

It might also mean that you have to do a tricky calculation to work out how much of the gain is taxable and how much is covered by the main residence exemption.

It is an area that can catch out Airbnb hosts, many of whom are unaware of the CGT implications of renting out part of their home.

Given the potentially long time between starting to rent out the property and ultimately selling it, CGT can be a costly trap for those who don't factor it into their cost/benefit analysis when they first decide to rent out part of their home.

Get stories like this in our newsletters.