Hosting on Airbnb: how much tax do you need to pay? | 2026/27 UK Guide

To accurately answer Hosting on Airbnb: how much tax do you need to pay?, practitioners must evaluate a drastically altered tax landscape for the 2026/27 tax year. The UK government has abolished the Furnished Holiday Lettings (FHL) tax regime, meaning you must now treat all Airbnb and short-term let income as standard property income.

Depending on your specific hosting arrangement, you must navigate income tax, restricted mortgage interest deductions, new Making Tax Digital (MTD) mandates, potential VAT registration, and Capital Gains Tax (CGT) upon sale.

The Abolition of the FHL Regime

For the 2026/27 tax year, the favourable tax rules that previously applied to Airbnb hosts are gone. The government abolished the FHL regime entirely with effect from 6 April 2025.

“Repealing the beneficial tax treatment for furnished holiday lettings promotes fairness by removing the tax advantages that furnished holiday let landlords have over other residential property landlords… The measure will have effect: on or after 6 April 2025 for Income Tax.”

Consequently, you must treat your Airbnb income exactly the same as income from a long-term residential tenancy. This fundamentally changes how you deduct expenses:

• Mortgage Interest Relief Restriction: You can no longer deduct your full mortgage interest payments against your Airbnb rental income. Instead, finance cost restriction rules apply, meaning loan interest relief is strictly restricted to a basic rate tax credit (20%).
• Capital Allowances Withdrawn: You can no longer claim capital allowances on new furniture or equipment for the property. Instead, you must rely on the standard “replacement of domestic items relief” (RDIR).

Rent-a-Room Relief vs Property Allowance

If you host guests in your own home rather than a separate property, you may benefit from specific tax exemptions under Chapter 1 of Part 7 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005).

Rent-a-Room Relief: Under section 793 of ITTOIA 2005, you can earn up to £7,500 per tax year completely tax-free if you let out furnished accommodation in your only or main residence.  However, you must satisfy a strict “shared occupancy” test.

You or a member of your household must maintain a physical presence in the property for at least part of the rental period.  If you vacate your entire home to let it out on Airbnb while you go on holiday, you fail the shared occupancy test and cannot claim Rent-a-Room relief for those receipts.

The Property Allowance: If you fail the shared occupancy test, or if you rent out a separate second home on Airbnb, you can claim the standard property allowance instead. This allowance grants an exemption from income tax on the first £1,000 of property income.  You cannot claim both the £1,000 property allowance and Rent-a-Room relief in the same tax year.

Calculating Income Tax on Airbnb Profits

If your Airbnb income exceeds your available allowances, you must pay income tax based on your marginal UK tax bands. For the 2026/27 tax year, the government has frozen the primary income tax thresholds until 5 April 2028:

• Personal Allowance: £12,570 (tax-free).
• Basic Rate Band (20%): Applies to taxable income up to £37,700 (resulting in a Higher Rate Threshold of £50,270).
• Higher Rate (40%) / Additional Rate (45%): Applies to income exceeding £50,270 and £125,140 respectively.

Making Tax Digital (MTD) for Income Tax

The 2026/27 tax year introduces a major compliance shift for high-earning hosts. From 6 April 2026, Making Tax Digital (MTD) for Income Tax becomes mandatory for landlords with total gross property and trading income exceeding £50,000.

If your Airbnb revenue pushes you over this £50,000 threshold, you must use MTD-compatible software to keep digital records and submit quarterly updates to HMRC, replacing the traditional annual Self Assessment return.

VAT Registration for High-Volume Hosts

While standard residential letting is exempt from VAT, providing short-term holiday accommodation on platforms like Airbnb constitutes a taxable supply. For the 2026/27 tax year, the mandatory VAT registration threshold is £90,000.

If your rolling 12-month gross Airbnb turnover exceeds £90,000, you must register for VAT and charge a 20% premium on your bookings, remitting this to HMRC. The deregistration threshold remains at £88,000.

Capital Gains Tax on Sale

When you eventually sell the property used for Airbnb hosting, you may owe Capital Gains Tax (CGT). Because the FHL regime is abolished, you can no longer claim Business Asset Disposal Relief (BADR) to secure a 10% rate on the sale.

Instead, you pay the standard residential CGT rates based on your income band:

• Basic Rate Taxpayers: 18%
• Higher/Additional Rate Taxpayers: 24%

If you hosted guests in your main home, you can claim Private Residence Relief (PRR) to exempt the gain. However, if a distinct part of the home was used exclusively for the Airbnb business, you must apportion the gain and pay CGT on the business portion.

Summary: Airbnb Taxes (2026/27)

Next steps for research: Assess whether the property is located in a local authority area that implements the new 100% council tax premium on periodically occupied second homes under the Levelling-up and Regeneration Act 2023.