Holiday Let Tax Concessions: What Changed for Holiday Lets in 2026/27?

Holiday let tax concessions changed significantly following the abolition of the Furnished Holiday Lettings (FHL) tax regime from 6 April 2025. For the 2026/27 tax year, landlords operating short-term holiday accommodation are generally taxed under the same property income rules as other residential landlords. As a result, many of the generous tax advantages previously available to qualifying furnished holiday lets are no longer available.

Understanding these holiday let tax changes is essential for landlords who currently operate holiday accommodation or are considering investing in the sector. Applying outdated FHL rules could result in incorrect Self Assessment returns, inaccurate tax planning and unnecessary discussions with HMRC. Holiday letting profits are now taxed under the standard Income Tax rules explained in our ultimate guide to personal tax in the UK. This guide explains how the rules have changed, which reliefs have been withdrawn and what landlords should now consider when managing holiday rental properties.

What Were Holiday Let Tax Concessions?

Before the abolition of the Furnished Holiday Lettings regime, qualifying holiday properties benefited from a separate set of tax rules that treated many holiday lets more like trading businesses than ordinary residential rental properties.

Provided a property met the qualifying conditions, landlords could access several valuable tax concessions that were unavailable to most residential landlords. These incentives encouraged investment in short-term holiday accommodation throughout the UK.

Among the principal benefits were:

• Capital allowances on qualifying furniture, fixtures and equipment.
• Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) where the conditions were met.
• Business Asset Rollover Relief in qualifying circumstances.
• Gift Relief on qualifying business assets.
• Treatment of profits as relevant earnings for pension contribution purposes.
• More favourable finance cost treatment than standard residential lettings.

For many landlords these reliefs reduced overall tax liabilities and made furnished holiday accommodation an attractive investment compared with long-term residential lettings.

Why Were the Rules Changed?

The Government concluded that the separate FHL regime created different tax outcomes for businesses carrying out similar property letting activities. The reforms were intended to simplify the tax system by bringing most holiday accommodation within the standard property income rules.

As a result, the separate Furnished Holiday Lettings regime ended from:

• 6 April 2025 for individuals, partnerships and trusts.
• 1 April 2025 for companies.

From these dates, holiday accommodation generally forms part of the owner’s UK or overseas property business instead of being treated as a separate FHL business for Income Tax and Capital Gains Tax purposes.

How Holiday Let Tax Rules Apply in 2026/27

One of the most important holiday let tax changes is that landlords should no longer determine whether their accommodation qualifies for the former Furnished Holiday Lettings regime. That said, checking furnished holiday let occupancy remains useful for supporting income and expense records, even though it no longer affects tax status.

Historic tests such as:

• 210 days available for letting
• 105 days actually let
• Long-term occupation restrictions
• Averaging elections
• Period of grace elections

were relevant only under the former FHL regime. They no longer determine the tax treatment of holiday accommodation for 2026/27.

Instead, landlords should focus on correctly calculating rental income, claiming allowable expenses, keeping accurate records and complying with the current property income legislation.

Holiday Let Tax Relief That Has Ended

Perhaps the biggest impact of the reforms is the loss of several valuable forms of holiday let tax relief. These reliefs previously gave qualifying landlords considerable tax advantages.

Capital Allowances

One of the most significant changes concerns capital allowances.

Under the previous regime, qualifying FHL businesses could often claim capital allowances on furniture, furnishings and equipment used within the holiday accommodation.

Following abolition of the FHL regime, landlords generally cannot continue using those special rules for newly acquired domestic furnishings.

Instead, landlords should consider whether the cost falls within:

• Replacement of Domestic Items Relief.
• General capital expenditure rules.
• Revenue repairs where appropriate.

Capital Gains Tax Relief

Another important change involves Capital Gains Tax.

Many FHL owners previously benefited from reliefs that were available because qualifying holiday lets were treated similarly to trading businesses.

For new disposals occurring after the abolition of the regime, those FHL-specific Capital Gains Tax advantages generally no longer apply unless protected by transitional legislation. It’s worth reviewing general strategies to reduce Capital Gains Tax on a buy-to-let property instead, since these now apply equally to former holiday lets.

Finance Costs

The previous treatment of finance costs has also changed.

Holiday accommodation is now generally subject to the same finance cost rules as other residential property businesses. Understanding the difference between Capital Gains Tax and Income Tax on rental income is now more important than ever, since holiday lets are taxed under exactly the same distinction as any other rental property. Individual landlords should therefore review how mortgage interest relief applies to their property portfolio rather than relying on historic FHL guidance.

Income Tax Treatment

Rental income from furnished holiday accommodation is generally included within the landlord’s property business for Income Tax purposes. This brings holiday letting much closer to the general tax implications for landlords earning passive rental income from conventional buy-to-let property.

Taxable profit is broadly calculated by taking gross rental income and deducting allowable expenses incurred wholly and exclusively for the rental business.

Examples of allowable expenses may include:

• Advertising costs.
• Cleaning between guests.
• Insurance premiums.
• Routine repairs and maintenance.
• Utility bills paid by the landlord.
• Booking platform commissions.
• Professional accountancy fees.

Capital improvements continue to receive different treatment from routine repairs and should not automatically be deducted as revenue expenses.

Pension Contributions and Relevant Earnings

Under the previous Furnished Holiday Lettings regime, qualifying profits could count as relevant UK earnings for pension contribution purposes. This enabled many landlords to make larger tax-relievable pension contributions based on their holiday letting profits.

Following the abolition of the regime, profits from most holiday accommodation are generally treated as ordinary property income. This means landlords should review whether their rental profits continue to qualify as relevant earnings before making pension contribution decisions.

Anyone relying on historic FHL guidance should review their position carefully to avoid exceeding the available pension contribution limits or assuming relief is available where it is no longer applies.

Transitional Rules Following the Abolition of the FHL Regime

Although the separate FHL regime has ended, transitional provisions continue to apply in limited circumstances. These rules help manage the move from the previous legislation to the current property income regime.

Depending on individual circumstances, transitional rules may affect:

• Capital allowance pools created before the abolition of the regime.
• Capital Gains Tax events connected with periods when the property previously qualified as an FHL.
• Existing balancing adjustments.
• Certain elections and claims made before the repeal.

Landlords should retain historic records for earlier tax years because HMRC may still require evidence supporting claims made before the regime ended.

Record Keeping Remains Essential

Although landlords no longer need to demonstrate compliance with the former FHL occupancy tests, accurate records remain fundamental to good tax compliance.

Useful records include:

• Booking confirmations.
• Platform statements from Airbnb, Booking.com or similar providers.
• Bank statements showing rental receipts.
• Invoices for repairs and maintenance.
• Insurance documentation.
• Utility bills.
• Cleaning invoices.
• Advertising costs.
• Evidence of private use where applicable.

Maintaining complete records helps support allowable expense claims and provides evidence should HMRC review the property business.

VAT Considerations for Holiday Accommodation

One area that has not changed is VAT.

Unlike many long-term residential lettings, supplies of holiday accommodation are generally taxable for VAT purposes. Landlords whose taxable turnover exceeds the VAT registration threshold should consider whether registration is required.

VAT may also apply to:

• Cleaning charges.
• Additional guest services.
• Accommodation packages.
• Booking fees charged directly by the business.

Landlords should monitor turnover regularly rather than assuming VAT does not apply simply because the activity involves residential property. Failing to track turnover and income accurately across booking platforms is a common way landlords unintentionally end up as landlords with undeclared income.

Practical Example

Sarah owns a furnished cottage in Cornwall that she lets through an online booking platform.

Before April 2025, the property qualified as a Furnished Holiday Let and Sarah claimed capital allowances on qualifying furnishings while benefiting from the special FHL tax regime.

For the 2026/27 tax year, the property is taxed under the normal UK property income rules. Sarah continues to declare all rental income, claims allowable expenses such as repairs, insurance and cleaning costs, and keeps detailed booking records. However, she no longer relies on the former FHL concessions when calculating her taxable profits.

This illustrates how landlords should adapt their tax reporting to reflect the current legislation rather than historic guidance.

Common Mistakes Following the Holiday Let Tax Changes

Many landlords continue to rely on outdated online articles or guidance that refers to the former FHL regime.

Common mistakes include:

• Applying the abolished 210-day and 105-day occupancy tests.
• Claiming capital allowances that are no longer available.
• Assuming Business Asset Disposal Relief automatically applies because the property was once an FHL.
• Treating holiday letting profits as relevant pension earnings without checking the current rules.
• Ignoring VAT obligations.
• Failing to distinguish between capital improvements and revenue repairs.
• Poor record keeping.

A regular review of accounting records and tax treatment helps reduce the risk of errors and ensures compliance with current HMRC requirements.

Planning Ahead for 2026/27

The removal of the separate FHL regime means landlords should focus on efficient property business management rather than relying on historic tax concessions.

Good practice includes:

• Reviewing the profitability of each holiday property.
• Keeping accurate financial records throughout the year.
• Monitoring VAT registration requirements.
• Reviewing finance costs and allowable expenses annually.
• Retaining documents supporting previous FHL claims.
• Checking HMRC guidance whenever tax rules change.

Landlords planning to purchase additional holiday accommodation should base investment decisions on commercial returns rather than expecting the former FHL tax concessions to apply. This is a useful moment to think more broadly about how landlords can scale their property portfolio without tax headaches, since holiday lets no longer offer a distinct tax advantage over other rental property.

Case Study: Adjusting to the New Holiday Let Tax Rules

Michael had operated a furnished holiday cottage for several years and had always relied on the former Furnished Holiday Let tax regime. After hearing about the recent holiday let tax changes, he was unsure which holiday let tax concessions still applied and whether he could continue claiming the same tax reliefs. To avoid errors on his Self Assessment return, he visited our Farringdon office for specialist advice.

During our consultation, we reviewed Michael’s holiday letting business and explained how the abolition of the Furnished Holiday Let regime affected his tax position for the 2026/27 tax year. We clarified which holiday let tax concessions had been withdrawn, including the former Capital Gains Tax and capital allowance benefits, and explained how his rental income should now be reported under the standard UK property income rules. We also reviewed his allowable expenses, finance cost treatment, VAT obligations and record-keeping procedures to ensure his tax reporting reflected the latest legislation rather than outdated FHL guidance.

Following the review, Michael updated his tax reporting process, gained a clear understanding of the latest holiday let tax rules and continued managing his holiday property with confidence while remaining fully compliant with HMRC.