What taxes apply to UK holiday let income in 2026?

Since the Furnished Holiday Lettings (FHL) tax regime was abolished on 6 April 2025, UK holiday let income is taxed as ordinary property income. The special tax treatment that gave FHL properties business status no longer applies.

For 2025-26 and beyond, the taxes that apply to a UK holiday let property are:

Income tax. Rental income from a holiday let is taxable at your marginal rate. Basic rate taxpayers pay 20% on profit. Higher rate taxpayers pay 40%. Additional rate taxpayers pay 45%. Taxable profit is rental income minus allowable expenses.

Capital Gains Tax (CGT). When you sell a holiday let property, the gain is subject to CGT. The current rates for residential property are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers (rates applicable from October 2024 onwards). The annual CGT exempt amount is £3,000 in 2025-26.

VAT. If your total taxable turnover exceeds the VAT registration threshold (£90,000 in 2025-26), you must register for VAT and charge it on holiday let income. Most individual owners stay below this threshold, but those with multiple properties should monitor their position.

Stamp Duty Land Tax. If you are purchasing an additional property for use as a holiday let, the higher rates for additional dwellings (currently 5% surcharge) apply.

What changed when FHL was abolished in April 2025?

Before April 2025, a qualifying Furnished Holiday Let was treated as a business for most UK tax purposes. That conferred a set of valuable reliefs that no longer exist.

Mortgage interest relief as a business expense. Under FHL rules, mortgage interest was fully deductible as a business expense. Since abolition, holiday let mortgage interest is treated the same as buy-to-let: you receive a basic rate (20%) tax credit, not a full deduction. Higher rate taxpayers are significantly worse off under this change.

Capital gains reliefs. FHL properties qualified for Business Asset Disposal Relief (BADR), reducing CGT to 10% on qualifying gains. They also qualified for Business Asset Rollover Relief and Gift Hold-Over Relief. None of these apply to holiday let property sold after 5 April 2025.

Capital allowances. FHL businesses could claim capital allowances on furniture, equipment and fixtures against taxable profits. From April 2025, only the replacement of domestic items relief applies — covering like-for-like replacements, not initial purchases.

Pension contribution qualifying income. FHL income counted as relevant UK earnings for pension contribution purposes, allowing higher pension contributions. Ordinary property income does not count as relevant earnings, so this benefit is lost.

Business rates relief. FHL properties in England could be assessed for business rates rather than council tax, and could claim Small Business Rates Relief. From April 2025, they revert to council tax assessment.

What has not changed: income tax on rental profits, VAT liability at the registration threshold, CGT on property disposal at standard residential rates, and the obligation to declare rental income on a Self Assessment return all continue to apply.

What expenses can you still deduct?

Despite the loss of FHL business reliefs, holiday let owners can still deduct a range of allowable expenses against rental income to reduce taxable profit.

Fully deductible expenses:

• Letting agent fees and management fees
• Cleaning costs between guests
• Linen, towels and consumables replaced regularly
• Property insurance (buildings and contents)
• Repairs and maintenance (not improvements)
• Utility bills where included in the rental
• Advertising and platform fees
• Professional services: accountant fees, legal fees for tenancy matters
• Furniture and equipment replacement (replacement of domestic items relief, like-for-like only)

Not deductible:

• Capital improvements to the property
• The purchase price of the property
• Mortgage capital repayments
• Personal expenses unrelated to the property

The £1,000 property income allowance. If your total gross rental income from all UK properties is £1,000 or less, it is fully exempt. If above £1,000, you can choose to deduct the £1,000 allowance or deduct actual expenses — whichever gives a lower tax bill.

Losses. From April 2025, new losses on holiday let income can only be offset against other property income in the same or future tax years — not against employment or other income sources.

Capital gains tax on holiday let properties

When you sell a holiday let property, the gain is subject to Capital Gains Tax at residential property rates.

How the gain is calculated. The taxable gain is the sale price minus the original purchase price, minus allowable costs (stamp duty on purchase, legal fees, estate agent fees on sale, and capital improvements made during ownership). The gain is then reduced by the annual CGT exempt amount (£3,000 in 2025-26).

CGT rates for residential property. Basic rate taxpayers pay 18%. Higher and additional rate taxpayers pay 24% (rates applying from October 2024).

Pre-April 2025 disposals. If you sold a qualifying FHL property before 6 April 2025, Business Asset Disposal Relief (10% CGT) may still have applied, subject to HMRC rules at the time.

Reporting and payment. Capital gains on UK residential property must be reported to HMRC and CGT paid within 60 days of completion, via HMRC's online Capital Gains Tax return service. The gain must also be reported on your annual Self Assessment return.

Main residence relief. If the holiday let was also your main residence at any point during ownership, you may be able to claim private residence relief on part of the gain. This is complex and specialist advice is recommended.

How to estimate your holiday let tax liability

Running a rough tax calculation before the end of each tax year helps avoid surprises.

Step 1: Calculate your rental income. Total all rental income received during the tax year (April to April), including retained booking deposits.

Step 2: Deduct allowable expenses. Subtract all qualifying expenses. The result is your net rental profit.

Step 3: Combine with other income. Your rental profit is added to your other taxable income for the year. The combined figure determines your marginal tax rate.

Step 4: Apply your income tax rate. If total income stays within the basic rate band (up to £50,270 in 2025-26), rental profit is taxed at 20%. Above this, the excess is taxed at 40%.

Step 5: Account for mortgage interest. If you have a mortgage on the property, you can claim a basic rate (20%) tax credit on the interest — not a deduction. This reduces your tax bill directly, regardless of your marginal rate.

Use the Houst holiday let tax calculator to estimate your tax position based on your rental income, expenses and mortgage interest in under two minutes.

This guide is general information, not legal or tax advice. Always speak to a qualified tax adviser about your specific situation.

Frequently asked questions

Is holiday let income taxed differently to buy-to-let income?

Since FHL abolition in April 2025, no. Holiday let income is now taxed the same way as ordinary buy-to-let rental income: as property income subject to income tax at your marginal rate, with mortgage interest treated as a 20% basic rate tax credit. The previous business tax status and associated reliefs were removed from 6 April 2025.

What happened to furnished holiday lettings tax relief in 2025?

The FHL regime was abolished on 6 April 2025. Business Asset Disposal Relief on CGT, capital allowances, full mortgage interest deduction, pension contribution qualifying income and small business rates relief all ceased to apply. Holiday let income from 2025-26 is treated as ordinary property income.

Can I still deduct expenses against my holiday let income?

Yes. Standard allowable expenses remain deductible: management fees, cleaning, insurance, repairs, utility bills where included, platform fees and professional fees. Mortgage interest generates a 20% basic rate tax credit. Capital improvements are not deductible.

Do I need to declare holiday let income to HMRC?

Yes. All rental income above £1,000 per year must be declared on a Self Assessment return. Airbnb and other platforms report host earnings to HMRC under the DAC7 directive. Income not declared is at risk of HMRC inquiry.

How do I calculate my holiday let tax bill?

Use the Houst holiday let tax calculator for an estimate based on your income, expenses and mortgage position. For an accurate figure, particularly if you are considering selling the property, use a qualified tax adviser who specialises in property.