Airbnb Tax UK: How Short-Term Rental Income Is Taxed in 2026/27

Short-term rental income from Airbnb, Vrbo, Booking.com and similar platforms is treated as UK property income by default. The abolition of the Furnished Holiday Lettings regime on 6 April 2025 means former FHL hosts now sit alongside standard residential landlords for income tax purposes: Section 24 applies to mortgage interest, capital allowances on furniture are no longer available, profits no longer count as relevant earnings for pension purposes, and Business Asset Disposal Relief no longer offers a CGT route on disposal. A small minority of high-service operations remain on the trading-income side of the line on Pawson principles. This guide walks through how Airbnb income is taxed in 2026/27, what FHL abolition changed in practice, and the regulatory and VAT overlay that sits on top of the tax position.

For the wider property income framework see the Section 24 tax relief complete guide and the CGT on UK property complete guide. For serviced-accommodation specific positions see our FHL abolition mechanics page and the SA vs BTL tax comparison.

The default position: Airbnb income is property income

UK income tax on a property letting business is charged under ITTOIA 2005 s.268, which states simply: "Income tax is charged on the profits of a property business." Section 264 defines a UK property business as the carrying on of one or more UK businesses generating income from land in the UK. Letting a single property through Airbnb falls inside that definition. So does running multiple short-term lets across a portfolio.

Profits of the property business are taxed at the general income tax rates for individuals in 2026/27:

• Personal allowance: £0 to £12,570 (0%)
• Basic rate: £12,571 to £50,270 (20%)
• Higher rate: £50,271 to £125,140 (40%)
• Additional rate: above £125,140 (45%)

Rental profit sits on top of other income (employment, pension, self-employment) for band purposes. A higher-rate-employed host with £80,000 salary and £15,000 of net Airbnb profit pays 40% on the rental slice, not 20%.

A separate 2 percentage point uplift on property income was announced at the Autumn Budget 2025, with the operative rates of 22% basic, 42% higher and 47% additional taking effect from 6 April 2027 (England and Northern Ireland). It was enacted in Finance Act 2026 (Royal Assent 18 March 2026); the 2026/27 tax year still uses the standard 20% / 40% / 45% rates.

What FHL abolition changed in practice

The Furnished Holiday Lettings tax regime was abolished by Finance Act 2025 Schedule 5, effective for income tax from 6 April 2025 and for CGT from 6 April 2025. The schedule systematically removes FHL-specific provisions from the legislative framework: ITTOIA 2005 Chapter 6 of Part 3 (defining commercial furnished holiday letting) is omitted, ITA 2007 ss.127 and 127ZA (treating FHL businesses as trades) are omitted, TCGA 1992 ss.241 and 241A (FHL chargeable gains treatment) are repealed, and CTA 2010 ss.65 and 67A (corporate FHL treatment) are omitted.

For a former FHL Airbnb host, four things changed at 6 April 2025:

1. Capital allowances on furniture and equipment are no longer available. Pre-abolition FHL businesses claimed the Annual Investment Allowance on sofas, mattresses, TVs and kitchen equipment. Post-abolition, those items are not capital allowance-eligible (capital allowances are not available against residential dwellings under CAA 2001 s.35). The replacement of domestic items relief (below) is now the only route for furnishing expenditure.
2. FHL profits no longer count as relevant earnings for pension contributions. Hosts who used substantial FHL profits to drive tax-relievable personal pension contributions lose that lever from 6 April 2025; only general earnings (salary, trading profits) qualify.
3. Business Asset Disposal Relief is no longer available on disposal. BADR offered a reduced CGT rate (14% from 6 April 2025, rising to 18% from 6 April 2026) on qualifying FHL disposals up to the £1 million lifetime cap. Post-abolition, standard residential CGT rates of 18% and 24% apply to disposals of former FHL property.
4. Section 24 mortgage interest restriction now applies. Pre-abolition FHL was outside Section 24; mortgage interest was deducted in full from rental profit. Post-abolition, interest is restricted to a 20% basic-rate tax credit in the same way as standard residential BTL.

Transitional rules within Schedule 5 preserve pooled capital allowances brought forward (writing-down allowances continue on the existing pool, the pool just does not receive new additions), ring-fence pre-abolition FHL losses for carry-forward against the new residential property business, and contain anti-forestalling provisions catching certain pre-announcement-to-abolition disposals structured to lock in BADR.

The trading-vs-property-income line

The narrow exception to property-income treatment is where the operation is conducted on a scale, and with a level of service, that takes it across the line into trading income. The leading authority is Pawson v HMRC [2013] UKUT 050 (TCC). Pawson concerned a holiday cottage owned through an estate and the question of whether it qualified for IHT Business Property Relief, but the test the Upper Tribunal applied (whether the property was held "wholly or mainly" for investment purposes) is the same test that runs through the trading-vs-investment classification across UK tax.

The factors that move an operation across the line are not statutory; they are evidential. Typical indicators of trading include:

• A managed kitchen with provided catering or breakfast
• Daily housekeeping during a guest stay (not just turnover cleaning between guests)
• On-site staff for check-in, concierge or guest support
• An integrated guest-experience offering (tours, activities, in-house entertainment)
• A commercial-grade marketing operation generating direct bookings independent of platform listings

The factors that point to investment (property-income) treatment, conversely, include passive ownership with platform-only listings, third-party cleaning contracted out, no on-site presence during stays, no provision of meals or services beyond the right to occupy, and the host's primary economic relationship being collecting rent rather than delivering an experience. A typical Airbnb host with a single secondary property managed remotely sits clearly on the property-income side. A serviced-accommodation operator running multiple units with concierge service and breakfast provision sits closer to the line. The fact pattern in Pawson itself (a single holiday cottage with substantial ancillary services) was held to be investment, which gives a sense of how high the bar sits.

Where an operation does cross the line into trading income, Class 2 and Class 4 National Insurance become payable on profits, but trading reliefs (Annual Investment Allowance on plant and equipment under CAA 2001, trading-profit-as-relevant-earnings for pension contributions, and potentially BADR on disposal of the trading business) come back into scope. The reclassification is not elective; it depends on the actual facts of the operation.

Allowable expenses on an Airbnb business

Expenses incurred wholly and exclusively for the property business are deductible against rental income. For a typical short-term let operation the allowable categories are:

• Cleaning and turnover costs. Cleaner fees between guest stays, laundry, consumables (toiletries, welcome packs).
• Utilities. Gas, electricity, water and broadband where the host pays directly. Where guests pay separately, only the proportion borne by the host is deductible.
• Council tax or business rates. Whichever applies (see the council tax / rates section below).
• Insurance. Buildings, contents, public liability and host-specific cover (typical Airbnb policy add-ons). Mortgage protection insurance where applicable.
• Repairs. Revenue repairs to maintain the property in its current state (re-painting, broken-fixture replacement, fixing leaks). Capital improvements (extensions, new bathrooms, conversions) are excluded from rental profit and enter the CGT base cost.
• Platform fees. Airbnb host service fees, listing fees, professional photography paid through the platform.
• Professional fees. Accountancy, legal advice on host-tenant matters, mortgage broker fees on commercial finance.
• Safety and compliance. Annual gas safety certificate, electrical installation condition report, PAT testing, fire risk assessment, smoke and CO alarms, fire extinguishers, first aid kit.
• Licensing. Scottish short-term let licence fees, English borough-licensing fees where applicable. The full fee for the period of let is deductible as a revenue expense.
• Travel. Genuine business travel to inspect, maintain or hand over the property; commuting costs and personal-use travel are excluded.

HMRC's Property Income Manual at PIM1000 contents lists the full set of allowable categories with sub-section detail per expense type. The mortgage interest position is dealt with separately under Section 24 (below).

Section 24 on Airbnb mortgages

Mortgage interest and other finance costs on an Airbnb property are not deducted from rental profit. Instead, a 20% basic-rate tax credit is given against the income tax liability under ITTOIA 2005 s.272A. The credit is capped at the lower of:

1. 20% of finance costs for the year
2. 20% of residential rental profit before any finance cost deduction
3. 20% of total income above the personal allowance

For a higher-rate taxpayer, the effect is that mortgage interest now relieves tax at 20%, not 40%. Pre-Section 24 (i.e. before 6 April 2017), £10,000 of interest reduced the tax bill by £4,000 for a higher-rate landlord; under Section 24 the same £10,000 of interest produces a £2,000 tax credit. That gap is the Section 24 wedge.

Pre-FHL-abolition, Airbnb hosts whose property met the FHL conditions were outside Section 24. From 6 April 2025, Section 24 applies in the same way as for standard BTL. Where credit is restricted by the cap, the un-credited portion carries forward indefinitely and is available against future years where the cap does not bite.

Worked example: a higher-rate Airbnb host post-FHL

To put the numbers together, consider Sara, a higher-rate-employed Airbnb host with the following 2026/27 position:

• Employment income: £62,000
• Airbnb gross receipts (after Airbnb host fee): £42,000
• Mortgage interest on the Airbnb property: £8,500
• Allowable expenses (cleaning, utilities, insurance, council tax, licensing, accountancy, replacement furniture): £14,200
• No other untaxed income; no capital losses brought forward

The income tax position is:

Step	Computation	£
Property profit before finance costs	£42,000 − £14,200	27,800
Property profit added to employment income	£62,000 + £27,800	89,800
Personal allowance		(12,570)
Income subject to tax		77,230
Tax at basic rate (£37,700 at 20%)		7,540
Tax at higher rate (£39,530 at 40%)		15,812
Tax before S24 credit		23,352
S24 credit at 20% of £8,500 finance cost		(1,700)
Income tax due		21,652

Pre-Section 24 mechanics (and pre-FHL-abolition for the same property), the £8,500 of interest would have been deducted from property profit, producing a profit figure of £19,300 and total income of £81,300, taxed at the higher rate on the rental slice with no S24 credit needed. The Section 24 wedge for Sara is £8,500 × (40% − 20%) = £1,700; she pays £1,700 more tax than under the pre-Section-24 deduction-in-full regime, despite the same underlying economics.

Sara's £8,500 finance cost is below 20% of her rental profit before interest (£27,800 × 20% = £5,560), so the cap does not bite for her. A more heavily geared host with interest exceeding 20% of pre-interest profit would see part of the credit restricted and carried forward.

Replacement of domestic items relief

The route for furniture and equipment expenditure on a post-FHL Airbnb property is ITTOIA 2005 s.311A: replacement of domestic items relief. The relief allows a deduction for the cost of replacing a domestic item (furniture, furnishings, household appliances, kitchenware) on a like-for-like basis. Four conditions apply:

• The expenditure is on a domestic item for use in a dwelling-house
• The old item provided was substantially the same as the new item
• The old item is no longer available for use in the dwelling-house (because it has been disposed of or scrapped)
• The expenditure is not capital allowance-eligible

The relief covers like-for-like replacement only. Improvement expenditure (replacing a £400 sofa with a £1,200 sofa) is restricted: the deduction is capped at the cost of an equivalent replacement, with the improvement element treated as non-deductible. The initial purchase of furniture and equipment is not within the relief; only replacement is. Any proceeds received from disposing of the old item (selling the displaced sofa second-hand) are netted against the new-item cost.

VAT and the £90,000 threshold

The default VAT treatment of residential lettings (long-term assured tenancies) is exemption. Serviced accommodation, holiday lets and most platform-delivered short-term lets sit outside the exemption: HMRC treats them as taxable supplies because the offering goes beyond a bare right to occupy and includes cleaning, linen, fixtures, fittings and the platform's reservation infrastructure. Where the supplies are taxable, registration becomes mandatory when VAT-taxable turnover exceeds £90,000 in any rolling twelve-month period (the threshold for 2026/27, confirmed at gov.uk/vat-registration-thresholds).

Once registered, the host charges 20% VAT on bookings and on most ancillary services, recovers input VAT on business expenses, and files quarterly returns through Making Tax Digital for VAT. The Tour Operators Margin Scheme (TOMS) applies where the host buys in services (cleaning, concierge, in-room amenities) for re-supply to the guest; under TOMS, VAT is calculated on the margin rather than on gross receipts, and input VAT on the bought-in services is not recoverable. The mechanics matter for hosts with significant bought-in service costs; full detail is in our TOMS VAT serviced accommodation guide.

Hosts below the £90,000 threshold have no VAT obligation and do not register; the cost of cleaning, linen and ancillary services is borne in full as a deductible expense with no VAT to recover.

Regulatory licensing: Scotland, London and English borough rules

Three distinct regulatory regimes sit alongside the tax position.

Scotland: mandatory short-term let licensing

Since 1 October 2023, all short-term lets in Scotland have required a licence from the relevant council under The Civic Government (Scotland) Act 1982 (Licensing of Short-Term Lets) Order 2022 (SSI 2022/32). The scheme covers four licence types:

• Secondary letting: the typical Airbnb arrangement where the property is not the host's own home
• Home letting: the host's own home let out for periods when the host is away
• Home sharing: the host shares the property with guests (lodger-style)
• Home letting and home sharing: combined

Licence fees are set locally and vary substantially across the 32 Scottish councils; conditions include gas safety, electrical safety, fire safety equipment, public liability insurance and adequate alarms. Operating without a licence is a criminal offence. The full cost of complying (annual licence fee, safety certification, insurance premiums attributable to the let) is deductible against rental profit.

London: the 90-day rule

In Greater London, the 90-night annual limit on entire-home short-term lets without change-of-use planning permission was inserted into the Greater London Council (General Powers) Act 1973 by Deregulation Act 2015 s.44. The rule allows residential premises in Greater London to be used as temporary sleeping accommodation without amounting to a material change of use, provided two conditions are met: the cumulative number of nights of such use does not exceed 90 in a calendar year, and the person providing the accommodation is liable for council tax on the property. Above 90 nights, change-of-use planning permission is required. Airbnb enforces the 90-night cap on entire-home Greater London listings through the platform; private-room lettings within a host's own home (where the host remains in residence) are not counted in the same way because the host's continued occupation prevents the use being a material change.

England outside London: borough-specific licensing

England outside Greater London has no nationwide licensing scheme but does have borough-specific Article 4 Directions removing permitted-development rights for change of use from C3 (dwellinghouse) to C4 (small HMO) or sui generis (large HMO or short-term let). The 2024-25 short-term-let registration scheme announced by the Department for Levelling Up, Housing and Communities has not yet commenced as of 2026; check the relevant borough planning portal before treating an English short-term let as outside licensing scope.

Council tax versus business rates

The boundary between council tax and non-domestic rates on a short-term let is rules-based, not elective. Under the Non-Domestic Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) regulations operative from 1 April 2023, a self-catering short-term let in England is entered on the non-domestic rating list (and pays business rates rather than council tax) where:

• The property was available for short-term letting for at least 140 nights in the preceding twelve months, AND
• The property was actually let on a short-term basis for at least 70 nights in the preceding twelve months

Both tests must be met. Below either threshold, council tax applies. Wales has a higher threshold under separate regulations (252 nights available, 182 nights actually let). Scotland has its own regime aligned to the licensing scheme.

Where a property is on the business rates list, Small Business Rate Relief may give 100% relief where the rateable value is below £12,000, with tapering relief up to £15,000. The relief is council-administered; hosts apply directly. Above the £15,000 threshold, full business rates apply, with the higher multiplier kicking in at rateable values above £51,000. Either way, the council tax or business rates paid (net of relief) is a deductible business expense.

Capital Gains Tax on disposal

The CGT treatment on selling an Airbnb property post-FHL abolition is standard residential CGT: 18% on the gain that falls within the basic-rate band and 24% on the gain above it (rates locked in our CGT rates page), with the £3,000 annual exempt amount for 2026/27. The disposal is reportable through HMRC's CGT on UK property service within 60 days of completion where tax is due; mechanics are in our CGT payment deadlines guide.

Three CGT considerations are specific to Airbnb hosts:

• Business Asset Disposal Relief is no longer available. Pre-FHL-abolition, BADR offered a reduced rate (14% from 6 April 2025, rising to 18% from 6 April 2026) on qualifying FHL disposals up to the £1 million lifetime cap. Post-abolition, standard 18% / 24% residential rates apply. The lifetime cap and reduced rate were rarely operationally relevant to small-portfolio FHL hosts but they did matter for hosts approaching retirement.
• Private Residence Relief. Where the property was at some point the host's main residence (a flip from main-home to Airbnb mid-ownership is common), PRR reduces the chargeable gain proportionately for the period of qualifying occupation. The final nine months of ownership always qualify as deemed occupation provided the property was at some point a main residence.
• Anti-forestalling rules. Disposals between 6 March 2024 (the announcement date for FHL abolition) and 5 April 2025 that were structured to lock in pre-abolition BADR are caught by anti-forestalling provisions in Finance Act 2025 Schedule 5. A genuine arm's-length sale to an unconnected buyer is generally outside the net; sales to connected parties or under contracts that depended on a Spring 2025 completion may be caught.

The CGT computation itself follows the standard sequence: net disposal proceeds (sale price less estate agent and legal fees) minus base cost (acquisition cost plus SDLT plus enhancement expenditure) minus reliefs minus the annual exempt amount, then split across the 18% and 24% bands. Worked-example mechanics are in our CGT calculation guide.

Reporting and Making Tax Digital

Airbnb income is reported through the property income pages of the Self Assessment return (SA105 for UK property), with the same disposal also reported on SA108 capital gains pages where a sale occurs in the year. From 6 April 2026, sole-trader landlords with qualifying income above £50,000 are within Making Tax Digital for Income Tax (MTD for ITSA): quarterly digital submissions through MTD-compatible software plus a final declaration. The threshold falls to £30,000 from 6 April 2027 and £20,000 from 6 April 2028.

Qualifying income is gross income from self-employment and property combined, not net of expenses. A £55,000-gross-revenue Airbnb host is within MTD from 6 April 2026 even if net profit after expenses is much lower. Joint-property owners test the threshold against their share of gross income, not the property's total. Limited companies are entirely outside MTD for ITSA (they file CT600 returns under corporation tax). Full mechanics are in our MTD for landlords April 2026 deadline guide.

HMRC also operates a digital reporting regime for online platforms under the OECD Model Rules for Digital Platforms (transposed into UK law via the Platform Reporting Regulations 2023). Airbnb itself reports host earnings data to HMRC annually; the existence of HMRC's parallel data feed makes under-declaration easier to detect than for cash-economy lettings.

Limited company versus personal ownership

For hosts where Section 24 is materially biting (typically: higher-rate-employed, mortgaged, single-property held personally), a limited company structure can produce a lower aggregate tax burden over the holding period. Companies are outside Section 24 (they deduct interest in full pre-corporation tax), pay corporation tax at 19% on profits up to £50,000 and 25% on profits above £250,000 (marginal relief tapering between under CTA 2010 s.18), and have flexibility on the timing of profit extraction via dividend, salary or pension contribution.

The offsetting costs are: company ownership loses the personal £3,000 CGT annual exempt amount on disposal (companies pay corporation tax on chargeable gains, with no AEA equivalent), incurs additional compliance cost (CT600 + Companies House filings + ATED return if the property is worth over £500,000 and the company is a non-natural person), and brings the close-investment-holding-company (CIHC) rules into scope where the predominant activity is investment rather than tenant-let property. The CIHC test (CTA 2010 s.18N) generally treats a tenant-let BTL company as outside CIHC because the rental activity is the qualifying purpose; serviced-accommodation operations sit closer to the line.

The decision is sensitive to: marginal income tax rate, level of leverage, length of intended hold, exit plans (personal use vs sale vs intergenerational transfer), and the host's willingness to absorb additional compliance overhead. Mechanics are in our BTL limited company complete guide.

Where Airbnb tax intersects with the wider compliance picture

An Airbnb host's tax position threads through several adjacent regimes: income tax on rental profit (with Section 24 restriction on interest, replacement of domestic items relief on furnishings, and the property-vs-trading-income classification setting the operative framework); VAT registration where turnover crosses £90,000 with TOMS overlay on bought-in services; council tax or business rates depending on let-day count; regulatory licensing in Scotland mandatory since October 2023, with London's 90-day rule and English borough Article 4 Directions adding location-specific overlay; CGT at 18% / 24% on eventual disposal with the 60-day return required where tax is due; and Making Tax Digital for Income Tax from 6 April 2026 for sole-trader hosts above the threshold. None of these regimes is decisive in isolation; the position has to be worked through end-to-end against the specific host's circumstances.