The abolition of the Furnished Holiday Lettings (FHL) regime in April 2025 fundamentally changed how holiday let income is taxed in the UK. If you own holiday rental properties, you need a holiday let tax calculator approach to understand your new tax position.

This guide walks you through calculating your holiday lettings tax bill step-by-step, covering income tax, Capital Gains Tax, and National Insurance implications. We'll show you the practical calculations and key differences from the old FHL system.

How Holiday Let Income Is Taxed After April 2025

Since April 2025, holiday lettings are treated as standard rental property income, not as a separate business activity. This affects your tax calculation in several ways:

  • Income taxed as property income at normal rates
  • No business asset disposal relief on sales
  • No annual investment allowance for equipment
  • No pension contributions based on holiday let profits
  • Different expense treatment for some items

The key question for your FHL calculator 2026 approach is whether your activity constitutes trading or remains property income. This depends on the level of services you provide.

Step-by-Step Holiday Let Tax Calculation

Step 1: Calculate Your Gross Holiday Let Income

Start by totalling all income from your holiday lettings for the tax year:

  • Rental receipts from guests
  • Booking fees retained (if you manage bookings)
  • Additional charges for utilities, cleaning, pets
  • Security deposits retained for damage
  • Insurance payouts for lost bookings

Step 2: Deduct Allowable Expenses

Calculate your net profit by deducting allowable expenses. The main categories include:

  • Property Maintenance and Repairs: Routine maintenance, cleaning between guests, garden maintenance, emergency repairs.
  • Utilities and Services: Gas, electricity, water, council tax or business rates, insurance premiums, internet and TV licensing.
  • Management and Marketing: Booking platform commissions (Airbnb, Booking.com), professional management fees, marketing costs, professional services (accountants, solicitors).

Post-FHL, you cannot claim annual investment allowance for equipment purchases. Instead, these are typically treated as revenue expenses or capital expenditure requiring depreciation.

Like other rental properties, holiday lets are subject to Section 24 restrictions. You can only claim a 20% tax credit on mortgage interest, not a full deduction against income.

Step 3: Apply Income Tax Rates

From April 2027, property income will be taxed at separate rates: 22% basic rate, 42% higher rate, and 47% additional rate. For 2025/26 and 2026/27, normal income tax rates apply.

Step 4: Consider National Insurance

One key change post-FHL is that holiday let income is no longer considered self-employment income for most landlords. This means:

  • No Class 2 or Class 4 National Insurance on rental profits
  • Cannot make pension contributions based on holiday let profits
  • No entitlement to certain benefits linked to self-employment

However, if your holiday letting activity amounts to a trade (significant services, frequent guest interaction), you may still pay National Insurance on profits.

Worked Examples and Professional Calculator Use

Given the complexity of post-FHL tax calculations, many landlords benefit from professional assistance. Here are complete worked examples that illustrate the key considerations, including complex expense allocations, trading status determination, and optimisation strategies.

Example 1: Basic Calculation

  • Gross income: £29,500 (£28,000 rental + £1,200 cleaning + £300 pet fees)
  • Operating expenses: £8,200
  • Mortgage interest: £4,500
  • Taxable profit (before interest relief): £29,500 - £8,200 = £21,300
  • Mortgage interest tax credit: £4,500 × 20% = £900

Basic rate taxpayer (2026/27): Tax on income: £21,300 × 20% = £4,260. Less £900 credit = Net tax due: £3,360.
Higher rate taxpayer: Tax on income: £21,300 × 40% = £8,520. Less £900 credit = Net tax due: £7,620.

Example 2: Complete Worked Example for a Holiday Let in Cornwall

  • Annual gross income: £35,000
  • Operating expenses: £12,000
  • Mortgage interest: £6,000
  • Owner is higher rate taxpayer

Tax calculation (2026/27):

  • Taxable profit: £35,000 - £12,000 = £23,000
  • Income tax: £23,000 × 40% = £9,200
  • Mortgage interest credit: £6,000 × 20% = £1,200
  • Net income tax: £9,200 - £1,200 = £8,000
  • No National Insurance (property income)
  • Total tax: £8,000

Under the old FHL regime, this might have been treated as trading income with additional National Insurance, but also with access to more generous reliefs. Professional advice can help optimise your structure, perhaps through incorporation or timing of disposals.

Trading vs Property Income Status

Post-FHL, determining whether your activity is trading or property investment is crucial for your holiday lettings tax calculation.

Indicators of Trading Activity

  • Daily cleaning and housekeeping services
  • Meals provided regularly
  • Significant personal services (concierge, tour guidance)
  • Short average stays (few days rather than weeks)
  • Hotel-like services and facilities

Indicators of Property Investment

  • Weekly or monthly lettings
  • Minimal services beyond basic accommodation
  • Guests have exclusive use of property
  • Limited personal interaction with guests

If classified as trading, your holiday let income would be subject to income tax and National Insurance, but you'd gain access to trading reliefs and allowances.

Capital Gains Tax on Holiday Let Sales

The FHL abolition significantly impacts CGT calculations on holiday property sales.

Loss of Business Asset Disposal Relief

Previously, FHL properties qualified for 10% CGT under business asset disposal relief. Post-April 2025, holiday lets are taxed at standard property CGT rates: 18% for basic rate taxpayers, 24% for higher rate taxpayers.

CGT Calculation Example

Holiday cottage purchased for £200,000 in 2020, sold for £280,000 in 2026:

  • Capital gain: £280,000 - £200,000 = £80,000
  • Less annual exempt amount: £80,000 - £3,000 = £77,000
  • CGT at 24% (higher rate): £18,480
  • Under old FHL rules: £77,000 × 10% = £7,700
  • Additional tax cost: £10,780

This represents a significant increase in the tax cost of disposing of holiday rental properties. You can find more details in our complete guide to property CGT.

Making Tax Digital for Holiday Lets

From April 2026, holiday let landlords with qualifying income over £50,000 (the MTD-for-ITSA threshold from 6 April 2026, falling to £30,000 from 6 April 2027 and £20,000 from 6 April 2028) must comply with Making Tax Digital requirements. This means:

  • Keeping digital records
  • Filing quarterly updates to HMRC
  • Using compatible software for calculations

Your holiday let tax calculator approach needs to accommodate these digital record-keeping requirements from the outset.

Future Planning and Professional Help

The holiday lettings landscape continues to evolve. Key future considerations for your tax planning include:

  • Separate property tax rates from April 2027 (22%/42%/47%)
  • Potential further changes to short-term letting regulation
  • Local authority licensing requirements
  • Tourism tax developments in some regions

The abolition of FHL has created complexity for many holiday let owners. Professional assistance from a specialist property accountant can help with:

  • Accurate classification of your letting activity
  • Optimising your expense claims
  • MTD compliance from April 2026
  • Strategic planning for property disposals
  • Considering incorporation options

The tax savings from proper planning often exceed the cost of professional advice, particularly given the loss of FHL reliefs and the complexity of the new rules.