Holiday Let Tax UK 2026: Complete Guide for Hosts
Holiday let tax in the UK looks very different in 2026 than it did two years ago. The Furnished Holiday Lettings (FHL) regime that gave short-term rental owners their main fiscal advantages was abolished from 6 April 2025 under the Finance (No. 2) Act 2024. Holiday let income now sits inside the standard UK property income rules, with new digital reporting obligations starting April 2026, increased income tax rates legislated for April 2027, and a different treatment for capital allowances, mortgage interest and capital gains.
If you let a cottage in Cornwall or a portfolio of cabins in the Lake District, the basics of what you owe and how you report it have changed. The guide below sets out the 2026 picture: what HMRC expects, what reliefs survive, what has gone, and where the deadlines now sit.
What is Holiday Let Tax in the UK?
Holiday let tax is the set of UK tax obligations applied to income from short-term rental properties. Since April 2025, holiday lets are taxed under the general property income regime in the Income Tax (Trading and Other Income) Act 2005, with no separate FHL category. Owners pay income tax on net rental profit at their marginal rate, may owe capital gains tax on disposal, can be liable for business rates instead of council tax if the property meets HMRC and VOA criteria, and from April 2026 must keep digital records and file quarterly updates under Making Tax Digital for Income Tax (MTD ITSA) if their qualifying income exceeds £50,000.
The term holiday let tax and the wider category of holiday home tax UK now both refer to general property income tax applied to short-term rentals, with some specific rules around business rates, mortgage interest restriction, and the loss-of-FHL transition.
What Changed in 2025 and 2026: The End of the FHL Regime
The Furnished Holiday Lettings regime ended on 5 April 2025 for income tax and capital gains tax purposes, and on 31 March 2025 for corporation tax. Properties that previously qualified as FHLs no longer get the tax advantages they used to: full mortgage interest deduction, capital allowances on plant and machinery, Business Asset Disposal Relief (BADR) on sale, and pension-relievable earnings status.
The current position for holiday let owners:
- Mortgage interest is no longer fully deductible against rental income; a 20% basic-rate tax credit applies instead (the same rule that has applied to long-term residential landlords since 2020).
- Capital allowances on plant and machinery are no longer available for new expenditure on furnishings, white goods, or fixtures inside the let.
- Replacement of Domestic Items Relief now applies to holiday lets, allowing deduction for like-for-like replacements of furniture, appliances and similar items.
- Capital gains from selling a former FHL no longer qualify for BADR (10% rate up to £1 million lifetime allowance); standard residential CGT rates apply (18% and 24% from 30 October 2024).
- Profits are no longer treated as "relevant UK earnings" for pension contributions.
- Loss relief is restricted: holiday let losses can only be carried forward against future property income from the same business, not set against general income.
Transitional rules apply to capital allowances pools built up before April 2025. Existing pools can continue to receive writing-down allowances; the block applies only to new assets bought after that date.
More about: Furnished Holiday Let Capital Allowances: Guide 2026
Making Tax Digital for Income Tax: April 2026 Deadline
The biggest operational change in 2026 is Making Tax Digital for Income Tax Self Assessment (MTD ITSA). From 6 April 2026, sole traders and landlords with gross qualifying income above £50,000 from self-employment and/or property in the 2024-25 tax year must:
- Keep digital records of all income and expenses.
- Use HMRC-approved software to submit quarterly updates (five filings per year, including the final declaration).
- Submit a final declaration by 31 January after the tax year ends.
The thresholds are scheduled to expand:
| Tax year start | Gross qualifying income threshold |
|---|---|
| 6 April 2026 | £50,000 |
| 6 April 2027 | £30,000 |
| 6 April 2028 | £20,000 |
For holiday let owners, "qualifying income" means combined gross income (not profit) from self-employment and UK property. A landlord with £40,000 from a holiday let and £15,000 from self-employed consultancy work would be in scope from April 2026, because the combined figure exceeds £50,000.
Quarterly update periods run 6 April to 5 July, 6 July to 5 October, 6 October to 5 January, and 6 January to 5 April. Updates are due by the 7th of the second month after each quarter end. Penalties for late submission start at one point per missed update, with a £200 fine triggered at four points.
Source: HMRC, MTD for Income Tax guidance, gov.uk.
Income Tax Rates on Holiday Let Profit: Now and from April 2027
Holiday let profit is taxed at the owner's marginal rate of UK income tax. For 2025-26 and 2026-27 the rates remain:
| Band | Taxable income | Rate |
|---|---|---|
| Personal allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
The Autumn Budget 2024 legislated a property-income-specific rate uplift from April 2027. From 6 April 2027:
- Basic rate on property income: 22%
- Higher rate on property income: 42%
- Additional rate on property income: 47%
These rates apply only to property income, not to employment or self-employment income. A higher-rate-band holiday let owner with £30,000 of net rental profit will pay roughly £600 more tax per year from 2027-28.
Personal allowance is preserved against property income, and Scottish and Welsh taxpayers should check whether devolved rates apply to their property income.
Capital Allowances: What Holiday Let Owners Can Still Claim
Capital allowances on plant and machinery inside the property are no longer available for expenditure after 5 April 2025. The block covers furniture, beds, sofas, kitchen appliances, TVs, washing machines, and most movable contents.
Three reliefs remain relevant:
1. Existing capital allowances pools. Assets bought before April 2025 that were already in a capital allowances pool keep getting writing-down allowances under the normal rules (18% main pool, 6% special rate pool). The pool does not die with the FHL regime.
2. Replacement of Domestic Items Relief. Replacing existing furniture, soft furnishings, white goods and kitchenware on a like-for-like basis is deductible. The relief does not cover the initial cost of kitting out a new property, and any element of improvement (a clear upgrade rather than a like-for-like replacement) must be excluded.
3. Capital allowances on integral features. Items embedded in the building (heating systems, electrical systems, water systems, lifts, escalators) are still treated as plant and machinery for capital allowances purposes if the property is run as a business that meets the relevant tests, particularly if it is rated as commercial property for business rates. Take specialist advice before claiming.
Kitting out a new holiday let now sits as capital expenditure with no immediate tax relief. Replacing items as they wear out is deductible. Damage caused by guests, which used to be partly offset through capital allowances on replacements, now hits the bottom line directly unless covered by a security deposit, damage waiver or insurance.
Business Rates vs Council Tax: The 2023 Rules Still Apply
If a property in England is available to let commercially as self-catering accommodation for at least 140 nights per year and is actually let for at least 70 nights in the previous and current rating year, it is classified as a non-domestic property and subject to business rates rather than council tax.
For Wales the threshold is stricter: available for 252 nights, actually let for 182.
What this means for hosts in 2026:
- Small Business Rates Relief (SBRR) can reduce business rates to zero on properties with a rateable value below £12,000 in England, with tapered relief up to £15,000.
- Council tax in tourist hotspots is now subject to second-home premiums of up to 100% in many English councils (powers granted under the Levelling-up and Regeneration Act 2023, in force from April 2025). A holiday let that fails the business rates test may face a council tax bill double the standard rate.
- A council tax second-home premium of 100% in an area where the band D rate is £2,200 produces a £4,400 annual liability before any other tax.
Track let nights carefully. Falling below the 70-night threshold for two consecutive years in England moves the property back into council tax, with potential premium consequences.
VOA assessment for business rates is separate from any planning consent issues. A property can be liable for business rates and still be in breach of planning use class if local rules require change of use for short-term lets.
Capital Gains Tax When You Sell a Former Holiday Let
Selling a former FHL after April 2025 falls under standard residential property CGT rules. The applicable rates from 30 October 2024:
- Basic rate taxpayers: 18%
- Higher and additional rate taxpayers: 24%
Annual CGT exemption for 2025-26: £3,000.
The previous BADR rate of 10% (up to a £1 million lifetime cap) is no longer available for new disposals of former holiday lets. Holdover relief on a gift of business assets is also gone, and rollover relief into other qualifying business assets has been removed.
A transitional rule preserves BADR eligibility for disposals where the FHL business ceased before 6 April 2025 and the sale completes within three years of cessation, provided all other BADR conditions are met. For a property that was an FHL on the day the regime ended and continues to be let, this transition does not apply.
CGT must be reported and paid within 60 days of completion via the UK Property CGT account on gov.uk. Late filing penalties start at £100.
Private residence relief is available for any period the property was the owner's main residence, calculated on a time-apportioned basis.
Mortgage Interest Restriction
Mortgage interest is no longer fully deductible against holiday let profit. The 20% basic-rate tax credit, already familiar to long-term residential landlords, now applies across the board.
The mechanics: mortgage interest is added back into taxable profit, the resulting profit is taxed at the marginal rate, and the owner gets a tax reduction equal to 20% of the lower of (a) the finance costs disallowed, (b) property profits, or (c) total income above the personal allowance.
For higher-rate taxpayers, the change is a real cash cost. A holiday let with £25,000 rental income, £8,000 mortgage interest and £5,000 other allowable expenses produces:
- Old FHL treatment: profit £12,000, tax at 40% = £4,800
- 2025-26 treatment: taxable profit £20,000, tax at 40% = £8,000, less 20% credit on £8,000 = £6,400. Net tax £1,600 higher.
Interest-only mortgages now look meaningfully different on a post-tax basis than they did three years ago. Some owners are reviewing their financing structure, or considering whether to hold properties through a limited company, which preserves full interest deductibility but introduces corporation tax, ATED considerations on residential properties above £500,000, and a separate set of compliance costs.
VAT on Holiday Lets
Holiday let income is standard-rated for VAT purposes (currently 20%). The FHL abolition did not change this. Owners with taxable turnover above £90,000 in any rolling 12-month period must register for VAT.
Once registered, VAT is charged on each booking, and input VAT can be recovered on related expenses. The Flat Rate Scheme is available for smaller operators. Tour Operators' Margin Scheme (TOMS) can apply where the owner is also packaging additional services.
Deliberate property structuring (separate ownership of individual units, joint-ownership arrangements) can keep operators below the threshold legally. HMRC will scrutinise artificial fragmentation, and getting professional advice early is sensible.
Joint Ownership and Spousal Tax Planning
Under the old FHL rules, married couples and civil partners could split profits in whatever proportion suited their tax position. That flexibility is gone. Holiday let income owned jointly between spouses is now split 50:50 by default unless a Form 17 declaration is in place reflecting actual beneficial ownership.
For couples where one partner is a higher-rate taxpayer and the other is not, the 50:50 default may produce a worse outcome than the old FHL flexibility. Reviewing beneficial ownership structures and considering a Form 17 declaration is worth doing early in 2026-27 if the property is held in unequal shares.
Record-Keeping Under MTD: What Hosts Need
From April 2026 (for those over £50,000 income), record-keeping must be digital. HMRC accepts the following as digital records: spreadsheets linked to MTD software, accounting platforms, and property management systems that integrate with MTD software via API.
Minimum information to capture per transaction:
- Date of transaction
- Amount in sterling
- Tax category (rental income, cleaning, utilities, agent commission, etc.)
- VAT element if registered
Holiday let owners receive income through multiple channels (Airbnb, Booking.com, Vrbo, direct), with platform fees and host fees deducted at source. Each transaction needs to be reconciled at the gross level, with platform fees recorded as expenses, not as a netted-down income figure. Several MTD-compatible accounting platforms now ingest data directly from booking channel APIs.
Penalties for non-compliance are points-based: each late submission earns a point, with a £200 fine triggered at four points within a rolling period. Penalty thresholds and interest on late payment have also been tightened from April 2025 under the new HMRC penalty regime.
Filing Early in 2026: Why It Matters
The 31 January 2026 deadline covered the 2024-25 tax year, the last year the FHL regime was in force. From the 2025-26 tax year onwards (filed by 31 January 2027), all returns use the new rules.
Filing early in 2026-27 has three practical advantages:
- Cash flow visibility. The tax bill from April 2025 to April 2026 is the first under the post-FHL rules. Knowing the actual figure earlier in 2026 helps with January 2027 payment planning, including the first payment on account.
- MTD onboarding. Owners crossing the £50,000 threshold need software in place from 6 April 2026. The first quarterly update is due 7 August 2026. Early filing of 2024-25 helps confirm threshold status and software fit.
- Loss claims and transition. Brought-forward FHL losses became restricted to UK property business losses from April 2025. Filing early flushes out any disputes over the treatment of historical losses.
January is congested for accountants. Sending them a draft in May or June produces better-quality advice and fewer surprises.
How Chekin Helps Holiday Let Owners Absorb the Cost of the FHL Abolition
One of the quieter consequences of losing FHL status is the loss of a financial cushion against guest damage. Under the old regime, capital allowances on plant and machinery meant that a broken sofa, a stained mattress or a smashed TV could be replaced and partly recovered through the tax system. From April 2025, that cushion is gone.
Damage caused by guests now hits the bottom line directly, with only Replacement of Domestic Items Relief available, and only on like-for-like replacements. Chekin helps holiday let operators protect themselves at the point where the loss actually happens: check-in and check-out.
For UK hosts in 2026, the parts that matter most after the FHL change are:
- Online security deposits. Hosts can request a refundable deposit at check-in, held until check-out and released automatically if no incident is reported. The deposit gives operators a direct way to cover damage without invoicing the guest after the fact.
- Damage protection. For properties where a security deposit is friction at booking, Chekin lets hosts attach a non-refundable damage waiver to each stay. The waiver covers accidental damage up to defined limits, so the host is not absorbing the cost of replacements out of net profit.
- Verified guest identity at check-in. Knowing who actually stayed in the property strengthens any damage claim against the guest or against an insurer, and reduces the chance of disputed chargebacks.
- Upselling tool. Early check-in, late check-out and extra services generate additional revenue per stay, which helps offset the higher tax burden created by the loss of full mortgage interest relief.
- Centralised payments. Chekin processes booking payments, deposits, upsells and tourist taxes from one place. Every transaction is recorded with guest, date and amount, which gives hosts a consolidated income record across direct bookings and channels instead of stitching together reports from Airbnb, Booking.com and bank statements at year end.
The tax rules are now the same for any holiday let. The operators who hold their margins are the ones who stop guest damage and lost deposits from quietly eroding their net profit every month.
Conclusion
Holiday let tax in the UK in 2026 is no longer a separate, more favourable regime. It is property income tax under general rules, with MTD from April 2026, higher property income rates from April 2027, restricted mortgage interest relief, and CGT at standard residential rates on sale.
Capital allowances on new furnishings have gone. Replacement of Domestic Items Relief and business rates eligibility remain the main reliefs worth defending. Hosts who get their digital records, business rates status, and joint ownership arrangements right early in the 2026-27 tax year will be in a stronger position when the first MTD quarterly update lands on 7 August 2026.
FAQs
No. The Furnished Holiday Lettings regime was abolished from 6 April 2025. Holiday let income is now taxed as UK property income at the owner's marginal income tax rate, with property-income-specific rate uplifts of 2 percentage points across all bands taking effect from April 2027.
Since April 2025, holiday home tax UK and buy-to-let tax follow broadly the same rules. Both are taxed as UK property income, both have the 20% mortgage interest credit, and both face the legislated 2-point rate uplift on property income from April 2027. Business rates eligibility is the main remaining difference.
From 6 April 2026, sole traders and landlords with combined gross qualifying income above £50,000 from self-employment and property in the 2024-25 tax year must keep digital records and file quarterly updates. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028.
Not on new purchases after 5 April 2025. Existing capital allowances pools continue to receive writing-down allowances. Replacement of Domestic Items Relief is available for like-for-like replacements of furniture, appliances and soft furnishings, but not for the initial cost of kitting out a property.
In England, a property available at least 140 nights per year and actually let for 70 nights qualifies for business rates. In Wales the thresholds are 252 and 182 nights. Properties failing these tests pay council tax and may face a second-home premium of up to 100% since April 2025.
Standard residential property CGT rates apply: 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. Business Asset Disposal Relief (10%) is no longer available on disposals of former holiday lets, except where the business ceased before 6 April 2025 and the sale completes within three years of cessation under the transitional rule.
Mortgage interest is no longer fully deductible against rental profit. Instead, holiday let owners receive a 20% basic-rate tax credit on finance costs, the same restriction that has applied to long-term residential landlords since April 2020. Higher-rate taxpayers pay more tax in absolute terms than they did under the old FHL rules.
