The UK tax treatment of short-term rental property changed more in 2024-2025 than in the previous decade. The abolition of the Furnished Holiday Lettings (FHL) regime from April 2025 reset the playing field, and many hosts entered the 2025-26 tax year applying outdated assumptions that will cost them thousands in unexpected liability.
This guide is the current practical view: what tax you owe, what you can legitimately deduct, when VAT enters the picture, the business-rates question, and how to keep records cleanly. It is not legal advice — your specific situation requires a hospitality-experienced accountant. But it should orient you correctly.
The Post-FHL Reality
From 6 April 2025, the FHL regime was abolished. HMRC's guidance has been updated to clarify that holiday-let income is now treated under the same rules as other property income. The practical implications for hosts:
- Mortgage interest is no longer fully deductible. It is now restricted to a 20% basic-rate tax credit, the same as buy-to-let. Higher-rate taxpayers feel this most.
- Capital allowances on furniture and fixtures are no longer available in the way they were under FHL. Replacement of Domestic Items Relief now applies — you can deduct the cost of like-for-like replacements but not the original purchase.
- Profits no longer count as relevant earnings for pension contributions. Hosts who relied on FHL profits to fund SIPP contributions need a new strategy.
- Capital Gains Tax reliefs (Business Asset Disposal Relief at 10%) are no longer available on disposal — sales now fall under standard CGT rates.
The tax bill for many hosts is materially higher than it was under FHL. Speak to an accountant about restructuring options, including potentially incorporating (where the corporate tax rate of 19-25% may compare favourably to higher-rate income tax).
Allowable Deductions: What You Can Still Claim
Even without FHL status, holiday lets are commercial in nature, and a wide range of operating costs are deductible against rental income:
- Cleaning costs — both staff and contracted cleaners
- Maintenance and repairs — to maintain the property to a lettable standard (not improvements, which are capital)
- Utilities — when paid by the host (gas, electricity, water, internet)
- Council tax / business rates — depending on the property's classification (see below)
- Insurance — buildings, contents, public liability, business interruption
- Property management software and platform fees — including subscriptions to OTA-management tools, your property management platform, accounting software
- Booking commissions — Booking.com, Airbnb, VRBO commissions
- Marketing — website hosting, photography, paid ads, listing optimisation services
- Mileage to and from the property for genuine business reasons — at HMRC-approved rates (currently 45p/mile for the first 10,000 miles)
- Replacement furniture and appliances — under Replacement of Domestic Items Relief (RDIR)
- Professional fees — accountancy, legal advice on contracts, hospitality consultancy
- Office costs — proportional home office costs if you administer the lettings from home
Keep receipts and invoices for everything for at least six years. Digital storage (scanned receipts in a structured folder per tax year) is HMRC-acceptable.
VAT: When You Cross the Threshold
The UK VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period (as of 2024-25). Short-term rental income counts as taxable for VAT purposes — unlike long-term residential rental, which is exempt.
For hosts with a single property generating £30,000-50,000 per year, VAT is rarely an issue. For multi-property portfolios, the threshold is reached fast. At 4-6 properties, you are likely already over.
Once registered, you charge VAT at 20% on bookings, but reclaim VAT on your allowable purchases. The net effect varies by your cost structure. Some hosts use the VAT Flat Rate Scheme (currently 10.5% for hospitality businesses with turnover under £150,000), which simplifies admin at the cost of full input reclaim.
For multi-property operators close to the threshold, deliberate VAT planning is worth real accounting time. The wrong structure can mean charging guests 20% more or absorbing it from your margin.
Council Tax vs Business Rates
One of the more confusing areas. A self-contained short-term rental property is generally subject to either Council Tax (residential rates) or Business Rates (commercial rates), depending on availability:
- Available for short-term let for 140+ days per year and actually let for 70+ days in England → typically Business Rates (with potential Small Business Rate Relief reducing the bill to zero on rateable values under £15,000)
- Below those thresholds → Council Tax
Many small hosts are better off under Business Rates with Small Business Rate Relief than under Council Tax. Apply to your local Valuation Office Agency to assess. Note: the rules and thresholds are tightening — Wales and Scotland have different criteria, and the English government is consulting on changes to prevent abuse.
Income Tax Bands and Self-Assessment
Holiday-let income, after allowable deductions, is added to your other income for the tax year and taxed at your marginal rate. The key 2025-26 bands for England, Wales, and Northern Ireland:
- Personal Allowance: first £12,570 tax-free
- Basic Rate (20%): £12,571 to £50,270
- Higher Rate (40%): £50,271 to £125,140
- Additional Rate (45%): over £125,140
Scotland has separate bands. The Personal Allowance reduces by £1 for every £2 of income above £100,000, fully tapering by £125,140 — creating an effective 60% marginal rate in that band.
Hosts file via Self Assessment, with a deadline of 31 January following the tax year end. Late filing penalties start at £100 and escalate quickly.
Software That Actually Helps
Spreadsheets work for one or two properties. From three properties up, dedicated software pays for itself many times over in time saved and missed deductions caught. The categories:
- Bookkeeping software: Xero, QuickBooks, or FreeAgent for general business books
- Property management platform with reporting: An integrated platform that surfaces revenue, fees, and operating costs per property simplifies the year-end process. See our KPIs guide for what to measure.
- Receipt capture: Apps like Dext or Hubdoc that scan paper receipts and feed them into your bookkeeping
- Mileage tracking: A simple log app for property visit mileage; HMRC requires evidence to support claims
For year-end tax, a hospitality-experienced accountant (£600-£1,500 per year for a typical small portfolio) usually saves more than they cost in deductions captured and structures used.
Bottom Line
The post-FHL UK tax regime is less generous than what came before, but a well-run short-term rental business is still a tax-efficient way to generate property income compared to long-term residential letting. Get the basics right — allowable deductions tracked, VAT planned for if relevant, business rates assessed properly, professional advice taken at year-end — and the post-tax economics remain attractive.
For the broader operational basis that makes year-end accounting straightforward, our platform overview shows how revenue, fees, and operating costs are tracked at the property level. For multi-property portfolio context, see our scaling guide.