How short-let income is taxed now

The holiday let tax rules have ended

Until April 2025, a short let that passed HMRC’s availability and occupancy tests counted as a furnished holiday letting (FHL), taxed more like a trading business than a buy-to-let. That regime has gone. From 6 April 2025 for Income Tax and Capital Gains Tax, and 1 April 2025 for companies, a former holiday let is simply part of your ordinary property business, taxed the same way as a long let.

This guide is general information, not tax advice. What you pay depends on your other income, who owns the home and how it is financed, so check your own position with an accountant.

For most owners the biggest change is mortgage interest. A higher-rate taxpayer used to save 40p in tax for every £1 of interest on a qualifying holiday let. Now they save 20p, the same as every other residential landlord. The credit rises to 22% from April 2027, when property income also moves to higher rates (more on that below).

What you can deduct

You pay tax on profit, not on what guests pay. HMRC lets you deduct costs that are wholly and exclusively for the let, and a short let has more of them than a long let, because you pay the bills, supplies and upkeep that a tenant would usually cover.

Based on HMRC’s guidance on rental income. Your accountant decides how each cost is treated in your accounts.

The line between a repair and an improvement is where most disagreements start. A repair puts something back to how it was, even with modern materials. Replacing worn kitchen units with similar ones is a repair; knocking through a wall to make the kitchen bigger is an improvement. Replacing a tired sofa is deductible; the first sofa for a flat you have just bought is not.

If you stay in the home yourself, split the costs fairly between your own use and the let. HMRC expects deductions to reflect the commercial use of the property, so a home you use for several weeks a year cannot claim a full year of bills.

Our monthly statements are itemised for your accountant, with each booking, fee and cost on its own line. Keep receipts for anything you pay directly, such as insurance or a new boiler. Our guide to running costs, line by line lists what a short let costs to run.

Do you need to tell HMRC?

If your home is let for more than the odd weekend, almost certainly yes. The first £1,000 of property income each year is tax-free under the property allowance, but if you claim it you cannot deduct any expenses as well. With the running costs of a short let, claiming your actual expenses is nearly always the better choice.

You may have heard of rent a room relief, which makes up to £7,500 a year tax-free. It is for letting furnished space in the home you live in, such as taking a lodger or running a B&B from your own home. It does not cover a separate house or flat that you let as a whole, which is how most short lets work.

The tax year and its deadlines

Self Assessment runs well behind the income. The tax year runs from 6 April to 5 April, and the tax on a year’s profits is not due until the 31 January after it ends, almost ten months later. These are the dates that matter each year.

1. 5 April
   Tax year endsIncome and costs up to this date go on that year’s return.
2. 5 October
   Register if you are newThe deadline to register for Self Assessment, in the October after your first tax year of letting.
3. 31 October
   Paper returns dueIf you still file on paper.
4. 31 January
   Online return and tax dueFile online and pay what you owe, plus any first payment on account for the next year.
5. 31 July
   Second payment on accountThe second advance payment towards the following year’s bill.

If your bill is over £1,000, HMRC usually asks for payments on account: two advance payments towards next year’s bill, each half of this year’s, due on 31 January and 31 July. In your first year of letting this can mean paying around one and a half years’ tax in a single January, so set money aside as the income comes in.

Making Tax Digital for landlords

Making Tax Digital for Income Tax changes how you report, not how much you pay. Instead of one return a year, you keep digital records in compatible software, send HMRC a short update every quarter, and finish the year with your tax return as before.

Qualifying income is your income from property and self-employment added together, before expenses. HMRC looks back at an earlier year: income in 2024 to 2025 decided who started in April 2026, 2025 to 2026 decides who starts in April 2027, and 2026 to 2027 decides April 2028. If you own a home jointly, only your share counts. Because the test is turnover rather than profit, a busy short let can bring you in even when the profit is modest.

Joint owners count only their own share.

Once you are in, the quarterly updates follow the same pattern every year:

Standard quarterly periods. Each update covers the tax year so far. Your tax return is still due by 31 January after the tax year ends.

Tax rates, and owning a home jointly

Profit from a short let is added to your other income and taxed at your usual Income Tax rates. From 6 April 2027, property income gets its own rates in England and Northern Ireland, each two points higher than today. Scottish and Welsh taxpayers should check, because their governments can set their own rates for property income.

If you own the home with a spouse or civil partner and live together, HMRC taxes the profit 50:50 by default. If you actually own it in unequal shares, you can both sign a declaration and send HMRC Form 17, and the profit is then taxed in line with those shares. Other co-owners, such as siblings or friends, are taxed on their ownership shares unless they agree a different split of the profit.

Where one partner pays basic-rate tax and the other higher-rate, the split matters. Changing it usually means changing who owns the home, so take advice first.

VAT

You must register for VAT if your taxable turnover goes over £90,000 in any rolling 12 months, or you expect your turnover in the next 30 days alone to go over £90,000. Turnover means income, not profit. VAT registration covers everything you do as a sole trader, so short-let income adds to any other taxable business you run.

If you are not registered, you cannot reclaim the VAT on fees you pay, such as a management fee. You simply deduct the full cost, VAT included, as an expense.

Selling, and holding a home in a company

When you sell a home that has not been your main residence, Capital Gains Tax is charged on the gain: 18% on the part that falls within your basic rate band and 24% above it. Former holiday lets no longer qualify for Business Asset Disposal Relief, rollover relief or gift relief. Keep receipts for improvements, because they can reduce the gain.

If tax is due on the sale of UK residential property, you must report it and pay within 60 days of completion, separately from your tax return. Late reporting brings interest and penalties.

Some owners hold short lets through a limited company. A company pays corporation tax on its profits, from 19% on profits up to £50,000 to 25% above £250,000, and is not subject to the mortgage interest restriction. Taking money out is taxed again, and moving a home you already own into a company counts as a sale, which can bring Capital Gains Tax and Stamp Duty Land Tax (Land Transaction Tax in Wales, Land and Buildings Transaction Tax in Scotland). It is a decision to make with an accountant.

Questions owners ask