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Holiday let tax after the end of furnished holiday lettings: income tax, MTD, VAT and platform reporting

Sergej Sitki · founder of ReceptionGO and host
Published 18 October 2026 · 7 min read

General information, not legal or tax advice. Check your own case with your local council, HMRC or the relevant revenue authority, or an accountant.

Since 6 April 2025 (1 April for companies) holiday lets are taxed like any other residential property income. Mortgage interest gives only a 20% tax credit, new furniture is covered by replacement of domestic items relief, and FHL capital gains reliefs have gone. From 6 April 2026, owners with property and self-employment income over £50,000 must also send quarterly updates under Making Tax Digital.

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For 40 years the furnished holiday lettings (FHL) regime gave UK holiday lets a tax position halfway between a home and a business. From April 2025 it no longer exists. Holiday let income is now simply part of your property business, with the same rules as a long-term rental — and from April 2026 many owners also have to report it every quarter under Making Tax Digital. Here is what changed, what did not, and what to do about it in the 2026/27 tax year.

What changed in April 2025

Two things did not change. The FHL rules never decided business rates — that is still the 140/70-day test in England and 252/182 in Wales, explained in our business rates and council tax guide. And VAT has nothing to do with FHL; it depends on your turnover.

Mortgage interest: the biggest hit

For an individual, finance costs (mortgage interest, loan arrangement fees) now give a tax reduction of 20% of the cost, whatever your tax rate. For a basic-rate taxpayer nothing much changes. For a higher-rate taxpayer the relief halves:

• Rental profit before interest: £30,000. Interest: £12,000.
• Under FHL (40% taxpayer): tax on £18,000 = £7,200.
• Now: tax on £30,000 = £12,000, minus 20% of £12,000 = £2,400 → £9,600.

Companies are outside this restriction, which is why some owners are looking at incorporating. Moving a property into a company is a disposal for CGT and usually triggers stamp duty land tax, so it rarely pays for one or two properties — talk to an accountant with the numbers in front of you.

Furniture, appliances and repairs

Capital allowance pools built up before April 2025 continue: you keep claiming writing-down allowances on the balance. New items go a different route. Replacement of domestic items relief covers the cost of replacing furniture, furnishings, appliances and kitchenware — but not the first purchase when you furnish a property. Repairs and maintenance, cleaning, laundry, platform commission, insurance, utilities you pay and accountancy fees remain ordinary allowable expenses.

Selling a former FHL

Holiday lets are now residential property for CGT, at 18% (basic rate band) or 24%, with a £3,000 annual exempt amount. You report and pay within 60 days of completion. Business Asset Disposal Relief survives only for a business that stopped before 6 April 2025 and is sold within three years. An anti-forestalling rule, from 6 March 2024, stops unconditional contracts made before April 2025 being used to lock in old reliefs.

Making Tax Digital from April 2026

MTD for Income Tax started on 6 April 2026. HMRC looked at your 2024/25 return: if your gross income from property and self-employment together was over £50,000, you are in.

What it means in practice:

• Digital records of income and expenses, in MTD-compatible software.
• Quarterly updates — summaries, not tax returns — for the quarters ending 5 July, 5 October, 5 January and 5 April, due by 7 August, 7 November, 7 February and 7 May.
• A final declaration by 31 January after the tax year, replacing the Self Assessment return.

The threshold counts turnover, not profit. A cottage that takes £35,000 a year and a small B&B taking £20,000 add up to £55,000 — in MTD from 2026, even if profit is a fraction of that. Holiday lets are counted as gross bookings received, so OTA commission does not reduce the figure.

What Airbnb, Booking.com and Vrbo tell HMRC

Since 1 January 2024 the UK has applied the OECD reporting rules for digital platforms. Each January platforms send HMRC the income each UK host earned in the previous calendar year, with the property address and the number of nights, and send the host a copy. HMRC uses it to find undeclared income. If the figure on your report does not match your records — because of refunds, cancellations or currency — keep the reconciliation: it is your answer if HMRC asks.

VAT for holiday lets, B&Bs and guest houses

Holiday accommodation is standard-rated (20%). You must register for VAT once your taxable turnover passes £90,000 in any rolling 12 months. Two things trip hosts up:

• The threshold counts all your taxable supplies across all your properties and businesses as a sole trader or partnership — not per property.
• Hotels, B&Bs and guest houses can use the reduced value rule for stays over 28 days, charging VAT only on the facilities element after day 28.

Visitor levies in Scotland and Wales are charged on top. In Scotland the percentage levy is calculated on the price excluding VAT — see the Scottish visitor levy guide.

Rent a room and the property allowance

If you let rooms in your own main home — a B&B, a lodger, a room on Airbnb — the rent a room scheme makes the first £7,500 a year tax-free (£3,750 each if shared). Smaller sideline income can use the £1,000 property allowance instead of claiming expenses. Neither applies to a separate holiday cottage that earns more than that.