Furnished Holiday Lets Are Gone: Here's How the Tax Rules Have Changed

The furnished holiday lettings regime was abolished from 6 April 2025, and Airbnb income tax in the UK now follows the same rules as an ordinary buy-to-let, with no capital allowances, no full mortgage interest deduction and no access to Business Asset Disposal Relief on sale. For landlords who built a holiday let around those reliefs, the change is not cosmetic: it raises the annual tax bill and alters how jointly owned property is taxed between spouses. This article sets out which reliefs disappeared, what replaced them, and what the shift costs a higher rate landlord in pounds. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, has restructured former holiday let portfolios since abolition took effect.

Key Takeaways

• The furnished holiday lettings tax regime was abolished for individuals from 6 April 2025 and for companies from 1 April 2025.
• Short-term let income is taxed as ordinary UK property income in 2026/27, so mortgage interest gives only a 20% basic rate tax reducer rather than a full deduction against profit.
• Capital allowances on furniture and equipment ended and were replaced by replacement of domestic items relief, covering like-for-like replacements only, never the initial purchase.
• Business Asset Disposal Relief, rollover relief and gift holdover relief no longer apply on the sale or transfer of a former holiday let.
• Holiday and short-term accommodation is standard-rated for VAT, and gross receipts above £90,000 in any rolling 12 months trigger compulsory VAT registration.

What changed when the furnished holiday lettings regime was abolished?

Abolition removed a package of tax advantages that had applied to qualifying holiday lets since the 1980s, and did so in a single step from 6 April 2025. Former holiday lets were folded into the landlord's ordinary UK property business from that date, and the losses are specific. Mortgage interest stopped being a deductible expense and now gives a tax reducer worth 20% of the interest. Capital allowances on furniture, white goods and fittings ended. Business Asset Disposal Relief, rollover relief and gift holdover relief ceased to apply. Profits stopped counting as relevant UK earnings for pension contributions.

One further change catches couples. Holiday let profits could be split in any proportion a married couple agreed, whereas ordinary property income defaults to 50:50 between spouses unless a Form 17 declaration reflecting actual beneficial ownership is filed with HMRC.

How is Airbnb and short-term let income taxed in 2026/27?

Airbnb and short-term let income is taxed in 2026/27 as property income at your marginal rate, with mortgage interest relieved only through the 20% tax reducer.

Consider James, a higher rate taxpayer who lets a Guildford flat on Airbnb. In 2026/27 it produces £42,000 of gross receipts, with £11,000 of mortgage interest and £9,000 of other allowable costs such as cleaning, platform fees and insurance.

Under the old holiday let rules his taxable profit would have been £22,000, taxed at 40% for a bill of £8,800.

Under current rules, interest is excluded from the expense calculation. Taxable profit is £33,000, tax at 40% is £13,200, and a credit of 20% of the £11,000 interest gives £2,200 back. His liability is £11,000, an increase of £2,200 a year on identical trading. For a fuller treatment, see our guide to Airbnb and short-term letting tax.

Does rent-a-room relief or the VAT threshold apply to short-term lets?

Rent-a-room relief exempts up to £7,500 of gross receipts a year from letting furnished accommodation inside your only or main residence, and it does cover short-term platform lettings of a spare room, but never a separate property let as a whole.

Letting a bedroom in the house you live in qualifies; letting your entire home while you are away, or letting a second flat, does not. Where two people share the income, the exemption halves to £3,750 each.

VAT is the larger risk for growing hosts. Short-term holiday accommodation is standard-rated at 20%, unlike long-term residential letting, which is exempt. Once gross receipts exceed £90,000 in any rolling 12-month period, registration is compulsory, and HMRC will assess the VAT due from the correct date whether or not it was charged to guests.

What do the Making Tax Digital rules mean for short-term let landlords?

Making Tax Digital for Income Tax is live, and from 6 April 2026 landlords with qualifying income above £50,000 must keep digital records and file quarterly updates, followed by a final declaration by 31 January after the tax year end.

Qualifying income means gross rental and self-employment income before expenses, not profit, so James at £42,000 of receipts sits below the current threshold. He is pulled in from April 2027, when it falls to £30,000, with a £20,000 threshold following in April 2028.

Spreadsheets no longer satisfy HMRC guidance for landlords in scope: records must sit in compatible software, categorised as income and costs arise. Airbnb and similar operators separately report host income to HMRC under the digital platform reporting rules, so mismatches are easy to spot. The tax year still ends on 5 April.

Former holiday lets are now taxed as ordinary property businesses, under the rules set out in our guide to the property income rules.

Frequently Asked Questions

Is the furnished holiday lettings regime still available in 2026/27?

The furnished holiday lettings regime is not available in 2026/27. It was abolished for individuals, partnerships and trusts from 6 April 2025, and for companies from 1 April 2025. Properties that previously qualified are taxed as part of the landlord's ordinary UK property business, with no separate holiday let calculation or reliefs.

How much tax will I pay on Airbnb income in the UK?

Airbnb income is taxed at your marginal income tax rate on rental profit, calculated as gross receipts less allowable expenses excluding mortgage interest. A higher rate taxpayer with £42,000 of receipts, £9,000 of costs and £11,000 of interest pays £13,200 at 40%, less a £2,200 interest tax reducer, giving £11,000.

Does rent-a-room relief cover Airbnb lettings?

Rent-a-room relief covers Airbnb lettings of furnished accommodation inside your only or main home, exempting up to £7,500 of gross receipts a year. It does not cover letting a separate property, nor letting your whole home while you are away. Where two people share the income, each is limited to £3,750.

When do landlords have to start filing quarterly under MTD?

Landlords with qualifying income above £50,000 joined Making Tax Digital for Income Tax from 6 April 2026 and must submit quarterly updates plus a final declaration by 31 January. Those above £30,000 join from April 2027, and those above £20,000 from April 2028. Qualifying income means gross receipts, not profit.

How Blue Tick Can Help

Blue Tick Accountants reviews former holiday let portfolios to quantify what abolition costs you, restructures ownership between spouses where a Form 17 declaration improves the position, and tests whether incorporation now makes sense. Blue Tick also handles VAT threshold monitoring and Making Tax Digital onboarding for short-term let landlords. Head to our website and book a meeting now.

Conclusion

Abolition moved short-term letting from a quasi-trading activity to plain property investment, and for a leveraged higher rate landlord that shift costs real money every year. Model your position on current rules rather than assuming the old numbers hold, check that joint ownership shares are declared correctly, and watch gross receipts against the £90,000 VAT threshold.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps landlords, limited company owners and the self-employed across the UK with property tax and compliance. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.