Income from Airbnb style short lets and serviced apartments is normally property income, taxed under the ordinary residential letting rules now that the furnished holiday lettings regime ended on 6 April 2025. It is a trade only where the operator provides services substantially beyond those a landlord normally provides, as in a hotel, guest house or bed and breakfast. Which side of the line you fall on decides interest relief, capital allowances, loss relief, Class 4 National Insurance and, from April 2027, your rate of income tax. Business rates follow a separate test based on nights available and let.

Is short let income property income or trading income?

A UK property business under section 264 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) covers every business carried on to generate income from UK property. Section 266 explains that this means exploiting an estate, interest or right in or over the property as a source of rents or other receipts, and other receipts include payments for a licence to occupy. A guest booking a flat for three nights takes a licence, so the starting point is property income however short the stay.

HMRC’s Business Income Manual at BIM22001 says income from furnished lettings is rarely trading income, even when the landlord works full time running the business. It is treated as a trade only when the landlord remains in occupation and provides services substantially beyond those normally provided by a landlord, for example bed and breakfast, a hotel or a guesthouse. PIM2076 adds that letting is unusual as a trade except for a hotel, guest house or similar activity where meals, cleaning and changes of linen are provided.

Cleaning between guests, fresh linen and a key safe are what most short let operators provide, and HMRC treats cleaning and similar work as ordinary incidents of a property business. PIM2076 also shows that a separate charge for extensive services, such as reception, porterage, laundry and cleaning, can be a trade alongside the letting, with the rent itself staying in the property business. The badges of trade help, but for accommodation the question is mainly the level and nature of the services.

What changed when the furnished holiday lettings regime ended?

HMRC’s policy paper explains that the regime was abolished from 6 April 2025 for income tax and Capital Gains Tax, and from 1 April 2025 for corporation tax. Previously, a property available for 210 days and let for 105 days in a tax year got four advantages. These were:

  • exemption from the finance cost restriction;
  • more generous capital allowances;
  • access to Capital Gains Tax reliefs for trading assets, such as business asset disposal relief and rollover relief;
  • treatment as relevant UK earnings for pension relief.

All four have gone. Former holiday lets now form part of the owner’s UK or overseas property business. Transitional rules let an existing capital allowances pool continue to receive writing down allowances, and carried forward losses from the old business can be set against future profits of the wider property business.

What reliefs does a short let property business get?

  • Finance costs. For individuals, section 272A ITTOIA allows no deduction for the costs of a dwelling related loan. Instead GOV.UK explains that a tax reduction is given at the basic rate, currently 20%, on the lowest of finance costs, property profits and adjusted total income. Section 272A(5) excludes companies. See landlord mortgage interest relief.
  • Furniture and equipment. Section 35 of the Capital Allowances Act 2001 stops plant and machinery for use in a dwelling house qualifying for allowances in a property business. Replacement of domestic items relief covers like for like replacements but, as GOV.UK states, not the initial cost of furnishing.
  • Losses. A property loss is normally carried forward against future profits of the same property business only.
  • Small amounts. The property allowance gives up to £1,000 a year tax free instead of deducting expenses. Letting a furnished room in your own home may fall within rent a room relief.

What is different if the activity is a trade?

The restrictions above are written for property businesses. Section 272A applies to the profits of a property business, and section 35 applies where the qualifying activity is a property business, so neither applies to a trade such as a guest house. Interest is deducted under the ordinary trading rules and capital allowances can be claimed on equipment. A trading loss can be set against other income under the rules in trading losses against other income, and the business may be eligible for business asset disposal relief on sale. The cost is National Insurance, and HMRC will expect evidence of the services if trading status is claimed.

Does National Insurance apply?

Class 4 contributions are charged under section 15 of the Social Security Contributions and Benefits Act 1992 on profits immediately derived from a trade, profession or vocation and chargeable under Chapter 2 of Part 2 ITTOIA. Property business profits are not within that charge. For 2026 to 2027, GOV.UK gives Class 4 rates of 6% on trading profits between £12,570 and £50,270 and 2% above that. Class 2 is treated as paid where profits are £7,105 or more. HMRC’s guidance at NIM23800 explains that ordinary landlord activities are not enough to make someone a self employed earner.

When do business rates replace council tax?

Business rates are decided by occupancy tests, not by the income tax label. GOV.UK says a property in England is valued as self catering accommodation if all these conditions apply:

  • it is let commercially for short periods of 28 nights or less;
  • it was available for such lets for at least 140 nights in the last 12 months;
  • it was actually let for at least 70 nights in that period;
  • it will be available for at least 140 nights in the next 12 months.

In Wales the thresholds are 252 nights available and 182 nights let. Scotland and Northern Ireland have their own rules. In England, small business rate relief may be available where only one property is let and its rateable value is under £15,000.

Does VAT apply to short lets?

Usually letting residential property is exempt, but VAT Notice 709/3 says holiday accommodation, including a house or flat advertised or held out as suitable for holiday or leisure use, is standard rated whatever the length of stay. An operator whose taxable turnover passes £90,000 in a rolling 12 months must register. The relief for stays over 28 days in hotels and similar establishments does not apply to holiday accommodation.

What changes from April 2027?

Finance Act 2026 introduces separate property income rates from 2027 to 2028: 22% basic, 42% higher and 47% additional, in England, Wales and Northern Ireland. Trading profits stay on the main rates. Making Tax Digital for Income Tax also widens: it applies from 6 April 2027 if qualifying income for 2025 to 2026 was over £30,000, and from 6 April 2028 if qualifying income for 2026 to 2027 is over £20,000. Booking platforms already report host income to HMRC under the digital platform reporting rules.

What does this look like in numbers?

Illustration only. Sam, a higher rate taxpayer, lets two city flats through booking platforms, with cleaning and linen between stays and nothing more. Profit before interest is £30,000 and mortgage interest is £10,000.

  • As a property business: taxable profit £30,000; tax at 40% is £12,000, less a finance cost reduction of £10,000 x 20% = £2,000, giving £10,000. No Class 4.
  • If Sam ran a staffed guest house that HMRC accepted as a trade, the interest would be deducted in full: profit £20,000, tax at 40% is £8,000, plus Class 4 of 6% on the £7,430 above £12,570, which is £445.80, assuming no other trading income.

Sam’s service level does not support a trade, so the first treatment applies. Reliefs follow the facts, not the label on the listing.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.