On this page
Holiday let income is now taxed like any other residential property income. The furnished holiday lettings (FHL) regime was abolished from 6 April 2025 for Income Tax and Capital Gains Tax, and from 1 April 2025 for Corporation Tax. Mortgage interest is relieved only as a basic-rate credit, capital allowances on new spending have gone, and the business reliefs from Capital Gains Tax no longer apply.
This guide is general information for owners in England, correct as of 30 September 2026. It is not tax advice. Confirm your own position with an accountant before acting on it.
What ended on 6 April 2025
| Area | Under the FHL rules (until April 2025) | Now |
|---|---|---|
| Mortgage interest | Deducted in full from profit | Tax reduction at the basic rate only |
| Furniture and equipment | Capital allowances | No capital allowances on new spending. Replacement of domestic items relief instead |
| Losses | Kept separate from other lettings | Carried forward against future profit of the same property business |
| Pension contributions | Profit counted as relevant UK earnings | Does not count |
| Selling or giving away | Business Asset Disposal Relief, rollover relief, gift relief | Not available. Residential CGT rates apply |
| Married couples | Profit could follow who did the work | 50:50 unless unequal ownership is declared on Form 17 |
Three transitional points matter if you owned a holiday let before the change.
- Existing capital allowance pools continue. Expenditure already in a pool at 5 April 2025 can still be written down. New spending follows the ordinary property rules.
- Old losses are not lost. FHL losses brought forward now sit with your UK property business and can be set against its future profit.
- Reliefs on sale are closed, with narrow exceptions. HMRC's policy paper says Business Asset Disposal Relief may still apply where a qualifying holiday let business ceased before the repeal and the disposal falls within the normal three years of cessation. An anti-forestalling rule has applied since 6 March 2024 to contracts used to secure the old reliefs. Both need an accountant.
How the profit is taxed now
All your UK lettings, holiday and long-term, form one property business. Profit is rent received less allowable expenses, and it is added to your other income. For 2026 to 2027 the rates in England are 20%, 40% and 45%.
That changes on 6 April 2027. Finance Act 2026 creates separate rates for property income: a property basic rate of 22%, a higher rate of 42% and an additional rate of 47%. Relief for finance costs will be given at 22%.
Expenses you can normally deduct include:
- management commission and booking channel fees
- changeover cleaning and laundry
- gas, electricity, water, broadband and the TV licence
- council tax or business rates
- insurance
- repairs and maintenance, but not improvements
- accountancy fees
Replacing a sofa, a bed or a washing machine qualifies for replacement of domestic items relief. Furnishing the property for the first time does not. The alternative to claiming expenses is the £1,000 property allowance, which suits only very small gross income.
Illustration only, using round figures. A higher-rate taxpayer has £20,000 of profit before £6,000 of mortgage interest.
| Tax on the let | |
|---|---|
| FHL rules, until April 2025: 40% of £14,000 | £5,600 |
| 2026 to 2027: 40% of £20,000, less 20% of £6,000 | £6,800 |
| From 6 April 2027: 42% of £20,000, less 22% of £6,000 | £7,080 |
If you are managed by Sea Breeze, the owner portal's income reporting gives your accountant the gross figures. What commission does and does not cover is set out in agency commission explained.
VAT
Holiday accommodation is standard-rated. You must register when your taxable turnover goes over £90,000 in a rolling 12 months, and that figure counts every taxable business you run as the same legal person. A sole trader with a VAT-registered trade already has to charge VAT on holiday bookings. Long-term residential rent is exempt and does not count.
HMRC's Notice 709/3 allows off-season lets of more than 28 days to be treated as exempt residential accommodation where the holiday trade in the area is clearly seasonal. That is relevant if you switch to longer winter lets, and it is a point to settle with an accountant first.
Council tax, business rates and the second homes premium
A holiday let in England is rated as a business only if it was available to let commercially for at least 140 nights and actually let for at least 70 nights in the last 12 months, and will be available for 140 nights in the next 12. Stays of more than 28 nights do not count towards the 70.
| On business rates | On council tax | |
|---|---|---|
| Who qualifies | Meets the 140 and 70 night test | Everything else |
| Relief or premium | Small business rate relief: nothing to pay at a rateable value of £12,000 or less if it is your only business property, tapering to £15,000 | 100% second homes premium in the BCP Council and Dorset Council areas since 1 April 2025 |
| Who decides | Valuation Office Agency | The council bills on the VOA's listing |
From April 2026 the government also applies lower multipliers to retail, hospitality and leisure properties with rateable values under £500,000, and its guidance lists holiday homes and short-term let apartments within business rates as qualifying.
The practical point: a let that falls short of 70 nights lands on council tax at double the standard charge. Whichever applies, the bill is an allowable expense. The full test is in our holiday let regulations guide.
Making Tax Digital for Income Tax
Making Tax Digital requires digital records and quarterly updates to HMRC through compatible software. It is being phased in by qualifying income, which is gross self-employment and property income before expenses:
- from 6 April 2026: over £50,000
- from 6 April 2027: over £30,000
- from 6 April 2028: over £20,000
Gross bookings count, not profit, so a single busy holiday let can bring an owner in even where the taxable profit is modest.
Buying, selling and owning through a company
Buying. An additional dwelling carries a 5% Stamp Duty Land Tax surcharge on top of the standard residential rates.
Selling. Gains on residential property are charged at 18% within the basic rate band and 24% above it. The annual exempt amount is £3,000, and the gain must be reported and the tax paid within 60 days of completion.
A company, in outline. A company pays Corporation Tax on profit at 19% to 25% and is outside the finance cost restriction, so interest is deducted in full. Against that:
- a company buying a dwelling for more than £500,000 faces a 17% SDLT rate unless a relief, such as the one for property rental businesses, applies
- the Annual Tax on Enveloped Dwellings can apply above the same value, again subject to reliefs
- taking the profit out as salary or dividends is taxed again
- moving a property you already own into a company usually triggers CGT and SDLT
The structure needs modelling against your own numbers before you commit.
What to do before your next tax return
- Tell your accountant the property is, or was, a holiday let and ask how the transitional rules apply.
- Keep a log of nights available and nights let. It is the evidence for the business rates test.
- Separate repairs from improvements, and replacements from first purchases, in your records.
- If you own jointly with a spouse in unequal shares, consider Form 17.
- Check your gross income against the Making Tax Digital thresholds.
- Re-run the numbers at the 2027 property rates. Our holiday let calculator gives the gross income to start from.
If the change in tax has you weighing the alternatives, see holiday let vs long-term rental and what our holiday let management service includes.
