Since the Furnished Holiday Lettings (FHL) regime was abolished on 6 April 2025, the answer to how much tax you pay on a holiday let property in the UK is simpler in one sense and more expensive in another. A holiday let is now taxed exactly like a buy-to-let: income tax on the profit at your marginal rate, the Section 24 restriction on mortgage interest, and 18% or 24% capital gains tax when you sell. What changed is that holiday lets lost the four advantages the old regime gave them, and a separate set of property income tax rates lands in April 2027.
This guide works through every charge a holiday let owner actually faces, from the income tax on your first booking to the CGT on eventual sale, plus the two questions that catch people out: whether you pay council tax on a holiday let or business rates, and whether holiday let stamp duty includes the second-property surcharge. The figures below are for 2026/27 unless stated otherwise.
What tax do you pay on holiday let income?
Holiday let profit is taxed as property income at your marginal rate. There is no special holiday-let rate and no separate allowance beyond the £1,000 property allowance. For 2026/27 the bands are:
| Band | Taxable income (2026/27) | Rate on profit |
|---|---|---|
| Personal allowance | Up 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% |
You are taxed on profit, not turnover. Profit is the rent and guest charges you receive, less the allowable running costs set out below. Income falls into the tax year you receive it, not when the booking is taken, so a deposit received in March 2026 for a July 2026 stay is 2025/26 income.
What counts as holiday let income is broad. It includes the nightly rate, cleaning and booking fees you charge guests, retained damage deposits, and charges for extras such as late check-in or a hot tub. If a guest pays it, it is income, even where the platform collects it and pays you net of commission (the gross figure is your income and the commission is an expense).
Is there a new tax on holiday let landlords?
People searching for a new tax on holiday let landlords are usually picking up on the FHL abolition. There is no new standalone holiday let tax. What happened is that the favourable FHL regime ended on 6 April 2025, and former FHL owners lost four reliefs at once:
- Full mortgage interest relief. FHL interest used to be fully deductible. Now Section 24 applies and interest only attracts a basic-rate credit.
- Capital allowances on new spend. No longer available on furniture and equipment bought from 6 April 2025; you now use replacement of domestic items relief instead.
- Business Asset Disposal Relief. Gone on sale, so the 18%/24% residential CGT rates apply, not the old reduced trading rate.
- Pension-relevant earnings. Holiday let profit no longer counts as relevant UK earnings for pension contributions.
The transitional rules soften the edges. Capital allowances pooled before abolition keep receiving writing-down allowances within your continuing residential property business, and any FHL losses are carried forward against future profits of that business. There were also anti-forestalling rules to stop owners triggering artificial disposals before April 2025 purely to lock in the old relief. Our guide to FHL abolition for individual owners covers the transition in detail.
The April 2027 rate change
From 6 April 2027, property income in England, Wales and Northern Ireland is taxed at separate, higher rates: 22% basic, 42% higher and 47% additional. This was announced at the Autumn Budget 2025 and enacted by Finance Act 2026 (Royal Assent 18 March 2026), so it is law, not a proposal. Only Scotland is carved out, because Scottish taxpayers already pay Holyrood-set rates on non-savings income.
Crucially, the Section 24 finance-cost credit rises in step, from 20% to 22%, so a basic-rate holiday let landlord sees no new wedge open up. A higher-rate landlord's credit improves slightly (20% to 22%) but still sits far below their 42% rate. The headline effect is simply a 2 percentage point increase on the rate applied to your holiday let profit. Our 2027 property income tax rates guide sets out the planning implications.
Allowable expenses on a holiday let
You deduct legitimate running costs from holiday let income before calculating tax. Holiday lets carry heavier running costs than a standard buy-to-let because of frequent turnover, so the deductions matter:
- Property running costs: cleaning and housekeeping between guests, gas, electricity, water, broadband, property insurance, and routine maintenance and repairs.
- Letting costs: Airbnb and Booking.com commission, listing and channel-manager fees, professional photography, and managing-agent fees.
- Professional and admin: accountancy, bookkeeping software, and the proportion of any legal costs relating to letting (not purchase).
- Council tax or business rates: whichever you pay on the property is deductible.
Two things commonly trip people up. First, furniture and appliances are no longer claimed as capital allowances. Instead, replacement of domestic items relief gives relief on the cost of replacing an item (a worn-out sofa, a broken fridge) but not on the first time you furnish the property. Second, capital improvements such as an extension or a new kitchen where there was none before are not deductible against income; they reduce the gain when you sell instead.
Section 24 and your mortgage interest
Because a holiday let is now a standard residential let, Section 24 restricts mortgage interest relief. You cannot deduct interest from profit. Instead you receive a basic-rate tax credit, worth 20% of interest for 2026/27 and 22% from 2027/28.
The cost falls on higher and additional-rate owners. Take a higher-rate landlord paying £6,000 of mortgage interest a year. Under the old FHL rules that £6,000 was fully deductible, saving £2,400 in tax (40%). Under Section 24, the £6,000 is added back and the landlord instead gets a £1,200 credit (20%). The same interest now costs £1,200 more in tax. A basic-rate landlord is broadly neutral, because their 20% credit matches their 20% rate. If your holiday let income tips you from basic into higher rate, the swing can be sharp, which is one reason joint ownership and structure choices matter.
Council tax or business rates on a holiday let?
This is the single most-asked question, and the answer is "it depends on how much you let it". The two charges are mutually exclusive: a property is in one list or the other, decided by the Valuation Office Agency.
| Feature | Business rates | Council tax |
|---|---|---|
| When it applies (England) | Available to let 140+ days and actually let 70+ days in the previous 12 months | Used as a second home, or fails the letting-day tests |
| Relief available | Small Business Rate Relief can reduce a single small property's bill to nil | None; many councils add a second-home premium of up to 100% |
| Premium risk | No second-home premium | Up to 100% premium in many areas from April 2025 |
| Deductible against income | Yes | Yes |
So a genuinely commercial holiday let that hits the 140-day availability and 70-day actual-let tests moves onto business rates, where a single small property often qualifies for Small Business Rate Relief and pays nothing. A property let only occasionally, or used partly as a family bolthole, stays in council tax and can attract a steep second-home premium. Scotland and Wales operate the same idea but with their own, stricter day counts (Wales requires 252 days available and 182 days actually let). Either charge is deductible against your holiday let profit. For the full picture see our guide to business rates versus council tax for landlords.
Stamp duty when you buy a holiday let
A holiday let is an additional residential dwelling, so holiday let stamp duty includes the second-property surcharge. In England and Northern Ireland that means standard SDLT plus the 5% additional-dwellings surcharge in force since 31 October 2024:
| Purchase price band | Standard SDLT | With 5% additional-dwellings surcharge |
|---|---|---|
| Up to £125,000 | 0% | 5% |
| £125,001 to £250,000 | 2% | 7% |
| £250,001 to £925,000 | 5% | 10% |
| £925,001 to £1,500,000 | 10% | 15% |
| Above £1,500,000 | 12% | 17% |
Scotland charges LBTT plus the 8% Additional Dwelling Supplement, and Wales charges LTT (which has a higher £225,000 nil-rate band) plus its higher residential rates. There is no holiday-let carve-out from any of these surcharges, and First-Time Buyer relief does not apply to a let property. Our buy-to-let SDLT surcharge guide walks through the detail and the limited routes that genuinely sidestep it.
VAT on holiday accommodation
Holiday accommodation is a standard-rated supply, unlike long-term residential letting, which is exempt. That means short-term holiday income counts towards the VAT threshold. You must register for VAT once your taxable turnover (the gross figure, not profit) exceeds £90,000 in any rolling 12-month period.
Registration is a real consideration for busy properties or owners running several lets together, because the test looks at turnover across the whole VAT-registrable business, not per property. Once registered you add 20% VAT to guest charges and can reclaim VAT on costs and refurbishment, but the 20% either makes you less competitive on price or eats into your margin if you absorb it. Owners approaching the threshold should plan ahead rather than register late and face backdated VAT.
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Capital gains tax when you sell
When you sell a holiday let, the gain is taxed under the residential property CGT rules for 2026/27:
| Element | 2026/27 position |
|---|---|
| Rate within basic-rate band | 18% |
| Rate above basic-rate band | 24% |
| Annual exempt amount | £3,000 |
| Reporting and payment | Within 60 days of completion |
| Private Residence Relief | Not available (not your main home) |
| Business Asset Disposal Relief | Not available since FHL abolition |
The whole gain above the £3,000 exemption is taxable. Holiday lets do not get Private Residence Relief, because the property is not your main home, and the Business Asset Disposal Relief that former FHLs once used (taxing the gain at a reduced trading rate) ended with the regime on 6 April 2025. A jointly owned property between spouses uses two annual exempt amounts and can split the gain across two tax bands, which is the most common legitimate way to reduce the bill. Transfers between spouses happen at no gain, no loss, so moving a share before sale does not itself trigger CGT. Our complete guide to CGT on property covers reliefs, the 60-day return and joint-ownership planning.
Holding a holiday let through a company
Some owners hold holiday lets through a limited company. Companies pay corporation tax (19% on profits up to £50,000, tapering to 25% above £250,000 for 2026/27) and, importantly, are not caught by Section 24, so they deduct mortgage interest in full. That can look attractive on paper, especially with the April 2027 personal rate rise.
| Factor | Personal ownership | Limited company |
|---|---|---|
| Tax on profit | 20/40/45% (22/42/47% from 2027/28) | Corporation tax 19% to 25% |
| Mortgage interest | Section 24 basic-rate credit only | Fully deductible |
| Extracting profit | Already in your hands | Extra tax on dividends or salary |
| CGT on sale | 18%/24%, uses £3,000 AEA | Gain inside company, no AEA |
| Moving an existing property in | n/a | Can trigger CGT and SDLT |
The catch is that profit inside a company is not yours until you extract it, and that second layer of tax (dividends or salary) often closes much of the gap. Incorporating a property you already own can also trigger CGT on the deemed disposal and a fresh SDLT charge on the company purchase. The decision turns on your other income, borrowing, and whether you reinvest profits or live off them. Our buy-to-let limited company guide runs through when incorporation stacks up.
Record keeping and Making Tax Digital
HMRC expects detailed records of holiday let income and costs: booking confirmations and payment receipts, platform statements from Airbnb and Booking.com, expense invoices, bank statements, and an occupancy calendar (which also evidences the business-rates day counts).
Making Tax Digital for Income Tax is now live and rolling out by income level. From 6 April 2026 it is mandatory for landlords with qualifying gross property and self-employment income above £50,000, falling to £30,000 from 6 April 2027 and £20,000 from 6 April 2028. Affected landlords must keep digital records and submit quarterly updates. Note the threshold tests gross income, not profit, so a high-turnover holiday let can be in MTD even if margins are thin. See our Making Tax Digital deadline guide for what to set up.
Planning points worth acting on
A few moves genuinely change the after-tax outcome on a holiday let, and they are worth getting right before the property is bought or let:
- Split ownership with a spouse. Putting the property into joint names spreads profit across two sets of bands and allowances, and gives you two £3,000 annual exempt amounts on eventual sale. Note that since FHL abolition the 50/50 spousal default applies and a Form 17 election is needed to use any other split.
- Time large costs. Bunching a furniture replacement or major repair into a high-income year reduces tax at your top marginal rate rather than the basic rate.
- Manage the business-rates day count. Hitting the 140-day available and 70-day actual-let tests in England moves you off council tax (and a possible second-home premium) and potentially onto a nil rates bill via Small Business Rate Relief.
- Watch the VAT line. If turnover is heading towards £90,000, plan the registration decision rather than crossing the line unexpectedly.
Avoid the common mistakes too: not declaring occasional letting income, claiming capital improvements against income, ignoring platform reporting to HMRC, and assuming the old FHL reliefs still apply (they do not).
Where it pays to take advice
Holiday let taxation now stacks income tax, Section 24, VAT, business rates and CGT on top of each other, and the April 2027 rate change adds another layer. A specialist who handles short-term rental income can model the personal-versus-company question, the joint-ownership split and the VAT threshold against your actual occupancy before you commit. The decisions worth getting professional input on are the structure (personal or company), the timing of any sale or incorporation, and getting MTD systems in place before your threshold year arrives.