Holiday Let Tax Rules UK 2026: What Airbnb Hosts Must Know

Important disclaimer: This article provides general guidance on UK holiday let taxation. It is not financial or tax advice. Tax rules are complex and depend on your individual circumstances. Always consult a qualified accountant or tax adviser before making decisions about your property business.

If you own a short-term rental property in the UK, the tax landscape shifted significantly in April 2025. The abolition of the Furnished Holiday Lettings (FHL) tax regime means Airbnb hosts, cottage owners and holiday let landlords now follow a different set of rules for declaring income, claiming expenses and planning for the future. More change is coming: from April 2027, property income will be taxed at its own, higher rates.

This guide explains what changed, what it means for the 2026/27 tax year and beyond, and the practical steps to take now.

What Changed: The End of Furnished Holiday Lettings Tax Relief

For many years, the FHL regime gave short-term rental owners tax advantages that ordinary buy-to-let landlords did not get. If your property met the FHL conditions (available to let for at least 210 days a year, actually let for at least 105 days, and with no more than 155 days a year of longer lets of over 31 days to the same occupant), you were treated in several ways like a trading business.

The key benefits of FHL status included:

• Full mortgage interest relief. You could deduct all your mortgage interest from rental income before calculating tax, rather than being limited to the 20% basic-rate tax credit that applies to other residential lets.
• Capital allowances on furniture and equipment. You could claim capital allowances on the cost of furnishing and equipping the property (beds, sofas, appliances, hot tubs), including the Annual Investment Allowance.
• Business Asset Disposal Relief (formerly Entrepreneurs' Relief). When selling, you could potentially pay 10% Capital Gains Tax on up to £1 million of lifetime gains, rather than the residential CGT rates.
• Pension contribution relief. FHL profits counted as relevant earnings for pension purposes, allowing larger tax-relieved pension contributions.
• Other capital gains reliefs. Roll-over relief and gift hold-over relief were available, as for a trade.

FHL losses were kept separate: they could only be carried forward against future profits of the same FHL business.

The abolition was announced in the Spring Budget 2024 and took effect from 6 April 2025 for Income Tax and Capital Gains Tax, and from 1 April 2025 for Corporation Tax (GOV.UK). From the 2025/26 tax year, holiday lets are taxed in the same way as any other residential rental property.

Why Did the Government Abolish FHL Status?

The government said the change promotes fairness by aligning the tax rules for furnished holiday lets with those for other property businesses, removing the tax advantage short-term lets had over homes let to longer-term tenants.

Whatever you think of the reasoning, if you run a holiday let your tax position has changed and you need to understand the new rules.

How Airbnb Income Is Taxed in the UK Now

Your Airbnb or holiday let income is now treated as property income under the standard rules for residential lettings.

Income Tax on Rental Profits

Your rental profit is your total rental income minus allowable expenses (see below). It is added to your other income (salary, self-employment profits and so on) and taxed at your marginal rate. For 2026/27 the bands outside Scotland are unchanged from 2025/26:

• Basic rate (20%) on taxable income up to £37,700 (above the £12,570 personal allowance)
• Higher rate (40%) on taxable income from £37,701 to £125,140
• Additional rate (45%) on taxable income above £125,140

Scotland has different income tax bands and rates, so Scottish hosts should check the Scottish rates.

New Property Income Rates From April 2027

From 6 April 2027, property income in England, Wales and Northern Ireland will be taxed at its own rates: a property basic rate of 22%, a property higher rate of 42% and a property additional rate of 47%. Relief for mortgage interest and other finance costs will be given at 22% (GOV.UK). The UK government says it will work with the devolved governments of Scotland and Wales on how property rates are set there. The property allowance and Rent a Room Scheme are not changing.

Mortgage Interest: The Biggest Change for Many Hosts

Under the old FHL rules, you deducted your full mortgage interest before calculating taxable profit. Now, like all individual residential landlords, you get only a basic-rate tax credit (20%) for your finance costs.

Consider a higher-rate taxpayer earning £30,000 a year in Airbnb revenue with £10,000 of mortgage interest (ignoring other expenses to keep it simple):

• Under the old FHL rules: taxable profit was £30,000 minus £10,000, so £20,000. Tax at 40% was £8,000.
• Under the current rules (2026/27): taxable profit is £30,000, because the interest is not deducted. Tax at 40% is £12,000, minus a 20% tax credit on £10,000 (£2,000). Net tax is £10,000.
• From 2027/28: tax at the 42% property higher rate is £12,600, minus a 22% credit on £10,000 (£2,200). Net tax is £10,400.

That is a £2,000 increase in the annual tax bill today compared with FHL, rising to £2,400 from April 2027, and the impact is larger for hosts with bigger mortgages or those paying the additional rate.

National Insurance

Rental profits are not normally liable to National Insurance. The main loss for FHL owners is the pension link: holiday let profits no longer count as relevant earnings, so they cannot support tax-relieved pension contributions in the way FHL profits did.

Allowable Expenses You Can Still Claim as an Airbnb Host

You can still deduct a wide range of running costs from your rental income. Allowable expenses are things you spend money on in the day-to-day running of the property, not capital costs such as buying or substantially improving it (GOV.UK). Keeping careful records matters more than ever, because every pound you can legitimately claim reduces your taxable profit.

Expenses You Can Deduct

• Cleaning and laundry: professional cleaning between guests, laundering linen and towels
• Insurance: specialist holiday let insurance, buildings and contents cover
• Utilities and local taxes: electricity, gas, water, and council tax or business rates (apportioned if the property is also your home for part of the year)
• Maintenance and repairs: fixing a broken boiler, repainting, replacing a damaged carpet. Repairs that restore something to its original condition are deductible; improvements generally are not
• Agent fees and platform commissions: Airbnb's service fee, co-host commissions, channel manager subscriptions
• Advertising and marketing: your own website hosting, professional photography
• Accountancy fees for preparing your property accounts
• Travel costs: journeys to the property for management purposes (not personal use). Instead of actual costs, unincorporated landlords can use HMRC's mileage rates: 55p a mile for the first 10,000 business miles from 2026/27 (45p before that), then 25p (HMRC PIM2220)
• Broadband and Wi-Fi provided for guests
• Guest supplies: welcome packs, toiletries, tea and coffee
• Software and subscriptions: pricing tools, property management systems, smart lock subscriptions

Replacement of Domestic Items Relief

For new spending on furniture and equipment, you now use Replacement of Domestic Items Relief. It lets you deduct the cost of replacing furniture, furnishings, appliances and kitchenware with a like-for-like item. The initial cost of furnishing a property is not deductible under this relief.

For example, if you replace a worn-out sofa with one of similar quality, you can claim the cost. If you upgrade from a basic sofa to a luxury one, you can only claim the cost of an equivalent basic replacement, and you must deduct anything you get from selling or scrapping the old item.

If you already had a capital allowances pool from your FHL business, the unrelieved balance moves into your ordinary property business and you can keep claiming writing-down allowances on it (HMRC PIM4180). New furnishing costs for a new holiday let, though, get no relief until items are replaced, so factor that into your projections.

Capital Gains Tax Implications for Holiday Let Owners

If you are thinking about selling, the changes matter just as much.

Loss of Business Asset Disposal Relief

Under the FHL rules, qualifying owners could claim Business Asset Disposal Relief (BADR) on a sale, paying 10% CGT on gains up to the £1 million lifetime limit. That was one of the most valuable FHL benefits. (BADR itself has since risen to 14% for 2025/26 and 18% from 6 April 2026, for businesses that still qualify.)

Holiday lets are now treated as ordinary residential property for CGT. The residential CGT rates are:

• 18% on gains falling within your basic-rate band
• 24% on gains above it

For a host selling with a £200,000 gain, the difference is stark:

• Old FHL rules (BADR at 10%): £20,000 CGT
• Now (higher-rate taxpayer at 24%): £48,000 CGT

That is an additional £28,000 in tax on the same gain, before the annual exempt amount.

Transitional Rules and Anti-Forestalling

Anti-forestalling rules, which apply from 6 March 2024, stop owners locking in the old capital gains reliefs by exchanging unconditional contracts before 6 April 2025 and completing afterwards.

There is one important transitional route. If an FHL business actually ceased before 6 April 2025, BADR may still be available on a disposal within the normal three years after the business ceased, provided the other conditions are met. Talk to your accountant about whether this applies to you.

Unused FHL losses are not lost: they can be carried forward against future profits of your ordinary UK property business.

Roll-Over Relief

FHL owners could previously defer CGT by rolling a gain into a replacement business asset. That is no longer available where the replacement asset is acquired on or after 6 April 2025 for a holiday letting business. If you plan to sell one holiday let and buy another, CGT on the first sale is now due in full.

The £1,000 Property Allowance: When It Applies

The £1,000 property allowance is for individuals with small amounts of property income. The first £1,000 of rental income in a tax year is tax-free.

If your gross property income is more than £1,000, you can choose either:

1. Deduct the £1,000 allowance instead of your actual expenses, which is useful if your costs are low
2. Deduct your actual allowable expenses, which is usually better if your costs are more than £1,000

You cannot do both, and if you use the allowance you cannot also claim the tax credit for mortgage interest. You cannot use the allowance at all in a tax year if you have property income from a company you or someone connected to you owns or controls, from a partnership where you or someone connected to you is a partner, or from your employer or your spouse's or civil partner's employer (GOV.UK).

For most Airbnb hosts earning meaningful income, the property allowance is irrelevant because actual expenses are far higher. The Rent a Room Scheme is separate: it lets you earn up to £7,500 a year tax-free from letting furnished accommodation in your own home, and may be more relevant if you host guests where you live.

Record-Keeping Requirements and HMRC Reporting

HMRC expects accurate, complete records of all income and expenses. With FHL gone, holiday let income is reported with any other UK rental income on the UK property pages (SA105) of your Self Assessment return.

What Records to Keep

• Booking and income records. Download your transaction history from Airbnb and other platforms regularly, and keep your own record too.
• Receipts for all expenses. Digital copies are fine. Use a dedicated folder, spreadsheet or accounting software.
• Bank statements. A separate bank account for rental income and costs makes record-keeping far simpler.
• Mortgage statements to support the finance cost tax credit.
• Mileage logs if claiming travel: the date, destination, purpose and miles driven.
• Capital expenditure records: what you paid for the property and any improvement costs, as these affect your CGT when you sell.

Making Tax Digital (MTD) for Income Tax

Making Tax Digital for Income Tax started on 6 April 2026 for landlords and sole traders whose qualifying income was over £50,000 in 2024/25. Qualifying income is your total income from self-employment and property before expenses, and your share counts if a property is jointly owned. The threshold falls to £30,000 from 6 April 2027 (based on your 2025/26 income) and £20,000 from 6 April 2028 (GOV.UK).

If you are in, you must keep digital records and send quarterly updates using compatible software, then submit a final declaration after the end of the tax year. If you are likely to cross the £30,000 threshold, choose software and start keeping digital records before your start date.

Filing Deadlines

• 5 October: deadline to register for Self Assessment if you have not filed before
• 31 October: deadline for paper tax returns
• 31 January: deadline for online returns and payment of tax owed for the previous tax year (plus any first payment on account)
• 31 July: second payment on account, if applicable

Late filing attracts an automatic £100 penalty, with further penalties over time, and late payment incurs interest.

Should You Switch to a Limited Company Structure?

With the loss of FHL benefits, particularly full mortgage interest relief, many hosts are asking whether to move their holiday let into a limited company. It is a fair question, but the answer is rarely simple.

Potential Advantages of a Limited Company

• Corporation Tax rates: 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief in between. For higher-rate taxpayers this can be lower than income tax on personal rental profits.
• Full deduction for finance costs. Companies deduct mortgage interest as a business expense, without the basic-rate credit restriction.
• Retained profits. You can leave profits in the company and reinvest them without paying personal income tax until you take them out as salary or dividends.

Significant Drawbacks to Consider

• Stamp Duty Land Tax on transfer. Moving a property into a company is usually treated as a sale at market value. Companies pay the higher residential rates, which have been 5 percentage points above the standard rates since 31 October 2024 (GOV.UK). Scotland and Wales have their own land taxes with their own surcharges.
• Capital Gains Tax on transfer. The transfer is a disposal at market value, so a property that has risen in value can trigger a large CGT bill. Some reliefs can apply in specific cases, which is specialist territory.
• Mortgage complications. Personal mortgages cannot simply be moved into a company. You may need to remortgage on a limited company basis, often at higher rates.
• Tax on extracting profits. Profits are taxed in the company, then again when you take them out. Dividend tax rates rose from 6 April 2026 to 10.75% (ordinary) and 35.75% (upper), so the combined rate may not be much lower than paying income tax directly.
• Extra compliance costs: annual accounts at Companies House, a Corporation Tax return and usually an accountant.
• No CGT annual exempt amount. Individuals get a £3,000 annual exemption; companies do not.

When a Company Structure Might Make Sense

Incorporation tends to work best when:

• you are buying a new property (avoiding transfer costs)
• you have a large mortgage and are a higher-rate taxpayer
• you plan to build a portfolio of several properties
• you intend to keep profits in the business rather than drawing them out straight away

For a single holiday let you have owned for years and that has grown in value, the upfront costs of a transfer often outweigh the ongoing savings. Every situation is different, and this is exactly where a property-specialist accountant earns their fee.

Tax efficiency is only one side of profitability; revenue is the other. Better photos, sharper pricing and a stronger title can all lift gross income. Zugrow, the autonomous hosting platform, helps hosts with that: its free listing score shows where a listing could improve, and the wider platform onboards new hosts in waves from a waitlist.

Frequently Asked Questions

Do the new tax rules apply to all UK holiday lets?

Yes. From 6 April 2025 (1 April 2025 for companies), the FHL regime was abolished across England, Wales, Scotland and Northern Ireland. Holiday lets are now taxed under the standard property income rules, however many days a year they are let.

Can I still claim capital allowances on furniture for my Airbnb?

Not on new spending. If you had an FHL capital allowances pool, you can keep claiming writing-down allowances on the balance carried into your property business. Otherwise, use Replacement of Domestic Items Relief, which covers the cost of replacing (but not initially buying) furniture, appliances and furnishings.

Is Airbnb income subject to VAT?

Only if your total taxable turnover goes over the VAT registration threshold, currently £90,000. Most individual hosts are below it. If you go over, you must register and charge VAT on your letting income, because holiday accommodation is standard-rated.

What is the best way to reduce my tax bill as an Airbnb host?

Claim every legitimate expense, keep thorough records, consider pension contributions from other earned income (holiday let income no longer counts as relevant earnings), and speak to a property tax specialist about your circumstances. Beyond tax, the most effective way to improve your net income is to increase your revenue through listing optimisation.

Do I need to register for Self Assessment?

If your rental income is more than £1,000 but no more than £2,500 a year, contact HMRC. You must file a Self Assessment return if your rental profit is £2,500 or more after allowable expenses, or your rental income is £10,000 or more before expenses (GOV.UK). If you have not filed before, register by 5 October after the end of the tax year. Most holiday lets are well above these levels.

What to Do Next

The end of FHL relief is a significant change, but it does not have to derail your hosting business. A practical checklist:

1. Review your tax position with a qualified accountant who understands property, well before January.
2. Audit your expenses and make sure you claim everything you are entitled to, including smaller costs like guest supplies, mileage and software.
3. Look at your mortgage costs. If you are a higher-rate taxpayer with a large mortgage, discuss the finance cost restriction and the April 2027 property rates with your accountant.
4. Check where you stand on Making Tax Digital. If your qualifying income was over £50,000 in 2024/25, you should already be using it. If it is over £30,000 in 2025/26, expect to join from April 2027; choose compatible software now.
5. Focus on revenue. Higher income is the best defence against higher taxes. Optimising your listing to win more bookings at better rates can offset much of the extra tax.

To see where your listing stands, get your free Airbnb listing score from Zugrow. For answers to common questions, visit our FAQs, or browse more UK regulation guides on our blog.

Sources: GOV.UK, abolition of the FHL regime; GOV.UK, property income rates from 2027; GOV.UK, renting out a property: paying tax; GOV.UK, Making Tax Digital for Income Tax; GOV.UK, Business Asset Disposal Relief. Checked October 2026.