Airbnb and the End of Furnished Holiday Lets

With the holiday season in full swing and many taking a well earned break, attention turns to holidays, whether abroad or in the UK. However, the rules relating to the renting of a ‘holiday home’ have all changed as from 6 April 2025. Now, Airbnb style lettings are taxed under standard residential property rules, bringing fewer reliefs and potentially higher tax bills.

What Is the Effect of These Changes?

Now only the cost of replacing domestic items is deductible, and only on a like-for-like basis. Initial purchases and upgrades no longer qualify, leading to higher taxable profits.

Only a flat 20% tax credit applies to finance costs. Higher and additional-rate taxpayers therefore lose the additional 20% or 25% tax relief that they previously enjoyed.

There are no longer any beneficial capital gains reliefs available, with gains now taxed at either 18% or 24% on sale.

Residential income is classified as property investment income, not trading income. It no longer qualifies as relevant earnings, limiting pension contributions for landlords without other income sources, and reducing many landlords’ ability to grow their pensions and claim tax relief.

Summary

The abolition of the Furnished Holiday Let (FHL) regime significantly impacts Airbnb in the UK. Many owners now consider switching to longer-term rentals or selling altogether, thus ceasing to use short-term letting sites like Airbnb.

Short-term letting landlords are justified in making changes, as they typically incur high set up costs (e.g. furnishings, appliances, renovations) that are no longer deductible. They face reporting higher profits, resulting in less after-tax income.

In addition, many of these properties are heavily mortgaged, making the changes to the finance cost restriction hit harder. The loss of various Capital Gains Tax (CGT) reliefs will increase many landlords’ tax exposure, while those relying on FHL income as their main source may lose access to making large pension contributions.

Key Considerations for Landlords

Landlords should assess their property’s financial performance to understand how the changes affect their after-tax income, they may wish to explore tax planning options, including restructuring ownership, incorporation, or alternative investments to mitigate tax exposure.

We’re Here To Help

Our Property Team are here to help you. If you’d like more information and advice on Airbnb and the End of Furnished Holiday Lets or to discuss your personal property circumstances, contact our team today!

Disclaimer - All information in this post was correct at time of writing.