Short-Term Letting After the Furnished Holiday Let Abolition: What's Changed?

Since 6 April 2025 there is no separate furnished holiday let tax regime in the UK, so Airbnb and short-term let income is now taxed under the ordinary UK property business rules alongside long-term residential rent. That single change removed full mortgage interest relief, capital allowances on furniture and equipment, and the capital gains tax reliefs that once made holiday lets attractive. Airbnb income tax UK 2026 rules therefore look very different from the position most hosts planned around, and many landlords are only now seeing the effect in their first full post-abolition tax bill. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, works with hosts and holiday let owners across the UK to recalculate their position and reduce the damage. This article explains what was abolished, how finance costs are now relieved, how rent-a-room relief interacts with platform income, the VAT threshold risk unique to short-term letting, and the record-keeping obligations that started in April 2026.

Key Takeaways

• The furnished holiday let regime was abolished from 6 April 2025 for income tax and capital gains tax, and from 1 April 2025 for corporation tax.
• Mortgage interest on short-term lets now attracts only a basic rate tax reducer of 20%, rather than a full deduction against rental profit.
• Capital allowances are no longer available on furniture and equipment in short-term lets, replaced by replacement of domestic items relief, which covers like-for-like replacements only and never the initial purchase.
• Business asset disposal relief, rollover relief and gift holdover relief no longer apply to short-term let properties disposed of after April 2025, so gains are taxed at the standard residential CGT rates of 18% and 24%.
• Rent-a-room relief still exempts up to £7,500 of income a year, but only where guests stay in the host's own main residence.
• Holiday and short-term accommodation is standard-rated for VAT, so gross platform income counts towards the £90,000 VAT registration threshold, unlike exempt long-term residential rent.

What Exactly Was Abolished in April 2025, and What Does It Mean for Airbnb Income Tax in the UK in 2026?

The furnished holiday let regime, which treated qualifying short-term lets as a trade for several tax purposes, ceased to exist from 6 April 2025. Properties that previously met the FHL conditions on availability and actual letting are now simply part of the owner's ordinary UK or overseas property business.

Four specific advantages disappeared. Finance costs are no longer fully deductible. Capital allowances can no longer be claimed on furniture, fixtures and equipment. Profits no longer count as relevant earnings for pension contribution purposes, which restricts how much a host can contribute tax-efficiently. And the capital gains tax reliefs that applied to trading assets, including business asset disposal relief and rollover relief, no longer apply on disposal. Any unused FHL losses carried into 2025/26 were absorbed into the general property business loss pool, so they can still be used, but only against ordinary property profits. For a full overview of how short-term lets are taxed from first principles, see our guide to Airbnb and short-term letting tax.

How Is Mortgage Interest Relieved on Short-Term Lets Now?

Mortgage interest and other finance costs on a short-term let now qualify only for a basic rate tax reducer worth 20% of the interest paid, applied after the tax on rental profit has been calculated. The interest is no longer deducted when working out taxable profit, which pushes reported property income higher and can drag hosts into a higher tax band.

Worked example: a higher-rate taxpayer receives £42,000 of Airbnb income in 2026/27 and incurs £13,000 of running costs covering cleaning, platform fees, utilities and insurance, plus £11,000 of mortgage interest. Under the old FHL rules, taxable profit was £18,000 and the tax at 40% came to £7,200. From 2025/26 onwards, taxable profit is £29,000, tax at 40% is £11,600, and the 20% reducer on £11,000 of interest gives back £2,200, leaving £9,400 payable. The same property, the same cash, and £2,200 more short-term let tax. The restriction applies to every mortgaged short-term let, so hosts should model the short-term let tax cost of each property individually before deciding whether to keep, sell or refinance it. Hosts with large mortgages and slim margins are the worst affected, because the reducer is capped at the lower of finance costs, property profits and adjusted total income.

Does Rent-a-Room Relief Still Apply to Airbnb Income?

Rent-a-room relief still applies to short-term letting, but only where the accommodation is furnished and forms part of the host's own main residence, and it exempts gross receipts of up to £7,500 a year. Letting a spare room or a sofa bed in the home you live in qualifies; letting a separate flat, an annexe with its own access, or a second property does not.

Where gross receipts stay at or below £7,500, the income is exempt and does not need to be reported. Where receipts exceed £7,500, the host chooses each year between paying tax on the excess above £7,500 with no expense deduction, or being taxed conventionally on profit after allowable expenses. Worked example: a Guildford host earns £11,200 from letting a spare room and incurs £2,600 of costs. Under the relief, taxable income is £3,700. Taxed conventionally, taxable profit is £8,600. The relief is clearly better here. The threshold halves to £3,750 each where two people share the income from the same property, and holiday let income HMRC treats as arising from a separate property never qualifies at all. Holiday let income HMRC receives data on from booking platforms is matched against returns, so the choice between the relief and conventional taxation should be documented each year rather than assumed.

Why Does VAT Matter More for Short-Term Lets Than Buy-to-Let?

Short-term holiday accommodation is standard-rated at 20% for VAT, whereas long-term residential letting is exempt, so a short-term let landlord can be dragged over the £90,000 VAT registration threshold in a way a buy-to-let landlord never is. The test is gross booking income across a rolling 12-month period, not profit, and platform commission does not reduce it.

This catches hosts with several properties. Worked example: a landlord operates four coastal cottages generating £24,000 each in gross bookings, giving £96,000 in a rolling year. That exceeds the £90,000 threshold, so registration is compulsory and 20% VAT must be accounted for on future bookings. If prices cannot be raised, the VAT comes out of the margin, costing roughly £16,000 a year on that turnover. The flat rate scheme percentage for holiday accommodation can soften the blow for some, and input VAT on cleaning, agency fees and furnishings becomes recoverable once registered, but the arithmetic needs doing before the threshold is crossed rather than after.

What Records and Filings Do Short-Term Let Landlords Need in 2026/27?

From 6 April 2026, landlords with qualifying income above £50,000 must keep digital records and file quarterly updates to HMRC under Making Tax Digital for Income Tax, followed by a final declaration by 31 January. Qualifying income is gross rental and self-employment income combined, before expenses, so a short-term let portfolio reaches the threshold quickly.

Landlords with qualifying income above £30,000 join from April 2027, and those above £20,000 from April 2028. Below £20,000, the existing self-assessment return remains the filing route, with the same 31 January deadline. Whichever applies, short-term letting demands better records than buy-to-let: nightly booking data, platform statements, cleaning and changeover costs, and a clear split between private use and let periods, since expenses must be apportioned where the owner uses the property personally. Platforms including Airbnb report host earnings to HMRC, so undeclared income is increasingly easy for HMRC to identify.

Frequently Asked Questions

Is Airbnb income taxable in the UK?

Yes. Airbnb income is taxable in the UK as property income and must be reported to HMRC once total property receipts exceed the £1,000 property allowance, or the £7,500 rent-a-room threshold where the letting is in your own main residence. Airbnb reports host earnings to HMRC, so undeclared income is readily identified.

When did furnished holiday lets stop being tax advantaged?

The furnished holiday let regime was abolished from 6 April 2025 for income tax and capital gains tax purposes, and from 1 April 2025 for companies. From those dates, short-term lets are taxed under the same rules as ordinary residential property businesses, with no capital allowances, restricted finance cost relief and no trading capital gains tax reliefs.

Can I still claim mortgage interest on a holiday let?

You can no longer deduct mortgage interest from holiday let profits. Instead you receive a basic rate tax reducer worth 20% of the finance costs, capped at the lower of your finance costs, your property profits and your adjusted total income. Higher and additional rate taxpayers therefore get materially less relief than before April 2025.

Do I have to register for VAT on Airbnb income?

You must register for VAT if your gross short-term letting income exceeds £90,000 in any rolling 12-month period, because holiday accommodation is standard-rated rather than exempt. The test uses gross bookings before platform commission, so hosts with multiple properties can cross the threshold without realising it.

How is capital gains tax charged when I sell a former holiday let?

Selling a former furnished holiday let now produces a residential property gain taxed at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers, with no business asset disposal relief, rollover relief or gift holdover relief available. The gain must be reported and the tax paid within 60 days of completion.

Does Making Tax Digital apply to short-term let landlords?

Making Tax Digital for Income Tax applies to landlords with qualifying income above £50,000 from 6 April 2026, requiring digital records, quarterly updates and a final declaration by 31 January. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028. Qualifying income is measured on gross receipts, not profit.

How Blue Tick Can Help

Blue Tick Accountants advises hosts and holiday let owners on rebuilding their tax position after the FHL abolition, covering finance cost restriction, replacement of domestic items claims, rent-a-room decisions and VAT threshold monitoring across multiple properties. A short review before your next filing usually identifies relief that is still available and flags the VAT risk before it becomes a registration penalty. Head to our website and book a meeting now.

Conclusion

Short-term letting is no longer a tax-privileged activity in the UK: the same finance cost restriction, the same replacement of domestic items relief and the same capital gains tax rates now apply to an Airbnb property as to a standard buy-to-let. The two areas worth immediate attention are your finance cost position, which may have quietly increased your tax bill by thousands, and your rolling 12-month gross booking total, because VAT registration at 20% on holiday accommodation is the single largest risk facing multi-property hosts. Recalculate both before your next return rather than after it.

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, short-term let hosts, limited company owners and the self-employed across the UK. 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.

Related reading: Is Your Airbnb Letting Classed as a Trade or Property Income by HMRC?.

Related reading: VAT and Airbnb Letting: When Does Your Short-Term Rental Income Become VATable?.