Guide · Mortgages & Property
Airbnb & Holiday Rental Tax: What You Owe HMRC
It's easy to think of Airbnb income as pocket money rather than a taxable business activity. HMRC disagrees — and since April 2025, holiday lets have lost the special tax treatment that used to make them more attractive than standard buy-to-let.
The headline rule: it is taxable income
Any profit you make letting out a property — a holiday cottage, a city-centre flat on Airbnb, a static caravan, a room in your own home — is taxable UK property income. It does not matter that the booking came through an app, that guests stay for a few nights rather than a year, or that you think of it as a side hustle rather than a business. The same Self Assessment rules apply as for a long-term tenant.
There is one allowance worth knowing: the £1,000 property income allowance. If your total gross rental income for the tax year — before any expenses — is under £1,000, you don't need to declare it. Above that, you must register for Self Assessment and report the income, even if your actual profit after costs is small.
What changed in April 2025: the end of Furnished Holiday Lettings relief
Until 6 April 2025, properties that qualified as Furnished Holiday Lettings (FHL) got noticeably better tax treatment than an ordinary rental:
- Full mortgage interest relief — unlike standard buy-to-let, FHL owners could deduct 100% of mortgage interest as a business expense before calculating tax, rather than getting only a 20% credit.
- Capital allowances — furniture, white goods, and equipment could be deducted against profit, similar to a trading business.
- Capital Gains Tax reliefs — Business Asset Disposal Relief and rollover relief were available on sale, often cutting the CGT rate substantially compared with a normal residential property.
- Pension contributions — FHL profit counted as earned income, allowing higher pension contributions than ordinary rental profit does.
The 2024 Spring Budget abolished the FHL regime entirely from 6 April 2025. Every holiday let — regardless of how many days it was available or actually let — is now taxed under exactly the same rules as a standard residential buy-to-let, including Section 24, which restricts mortgage interest relief to a 20% basic-rate tax credit no matter what tax band you're in.
What you can and can't deduct
| Cost | Deductible? |
|---|---|
| Platform / host fees (Airbnb, Vrbo) | Yes, in full |
| Cleaning and turnover costs | Yes, in full |
| Maintenance and repairs | Yes, in full |
| Utilities, broadband, council tax | Yes, in full |
| Insurance and licensing | Yes, in full |
| Mortgage interest | 20% tax credit only (Section 24) |
| Furniture and capital items | No — was allowed under FHL, not since April 2025 |
Day-to-day running costs remain fully deductible against rental income. The change that matters most is finance costs: a heavily mortgaged holiday let can show a healthy pre-tax profit on paper and still face a disproportionately large tax bill, exactly as happens with standard buy-to-let.
Worked example: a £200,000 holiday cottage
A cottage let at £120/night, 60% occupancy (≈219 nights/year), 3-night average stay, with typical running costs and no mortgage:
| Item | Amount |
|---|---|
| Accommodation revenue (219 nights × £120) | £26,280 |
| Cleaning fees collected (73 stays × £50) | £3,650 |
| Total receipts | £29,930 |
| Platform fees (3%) | −£788 |
| Cleaning costs (73 × £60) | −£4,380 |
| Maintenance (5%) | −£1,314 |
| Utilities & bills | −£1,800 |
| Other costs (insurance etc.) | −£800 |
| Net operating income | £20,848 |
| Income tax at 20% | −£4,170 |
| Post-tax profit | £16,678/yr |
Add a mortgage to this property and the maths gets less forgiving: Section 24 taxes the full net operating income before deducting interest, with only a 20% credit applied against the interest paid — the same restriction that already squeezes standard buy-to-let landlords.
Practical steps to stay compliant
- Register for Self Assessment if gross letting income exceeds £1,000/year — don't wait for a tax form that platforms won't send.
- Keep every receipt — cleaning invoices, maintenance bills, utility statements, and insurance documents all support your expense claims if HMRC asks questions.
- Separate cleaning fees from rent in your own records even though guests pay them together — it makes reconciling income and costs far easier at tax time.
- Model the post-tax position, not just the booking calendar — a fully booked property can still be a poor investment once Section 24 and running costs are accounted for.
Frequently asked questions
Do I have to pay tax on Airbnb income?
Yes. Any profit from letting a property — whether it's a spare room, a whole flat, or a dedicated holiday cottage — is taxable UK property income. The only carve-out is the £1,000 property income allowance: if your gross rental income (before expenses) is under £1,000 for the tax year, you don't need to report or pay tax on it. Above that threshold, the profit is taxed at your marginal income tax rate via Self Assessment.
Does Airbnb tell HMRC how much I've earned?
Increasingly, yes. Under the OECD's sharing economy reporting rules, platforms including Airbnb, Vrbo, and Booking.com are required to report host earnings to UK tax authorities. HMRC also runs data-matching programmes against platform data. Relying on the assumption that undeclared income won't be noticed is no longer a safe bet.
What is the £1,000 property income allowance?
It's a tax-free allowance for the first £1,000 of gross property income each tax year, available instead of deducting actual expenses. It only helps if your total letting income (not profit) is below £1,000 — most serious Airbnb operations earn well above this, so most hosts will deduct actual expenses instead.
Can I still use the Rent a Room Scheme for Airbnb?
Rent a Room relief (up to £7,500/year tax-free) only applies if you are letting furnished accommodation in your own main home while you live there too — for example, renting a spare room on Airbnb. It does not apply to a separate holiday cottage, a let-out flat, or a property you don't live in.