---
title: "Tax Rules for Short-Term Lets 2026/27"
description: "The tax landscape for UK short-term property letting has undergone its most significant change in decades. Following the abolition of the Furnished Holiday Lettings (FHL) regime, the 2026/27 tax year marks the second full year under a new, unified system.…"
url: "https://www.accountingfirms.co.uk/knowledge-bank/tax-rules-for-short-term-lets/"
updated: "2026-06-22"
category: Self Employed Tax
---

# Tax Rules for Short-Term Lets 2026/27

The tax landscape for UK short-term property letting has undergone its most significant change in decades. Following the abolition of the Furnished Holiday Lettings (FHL) regime, the 2026/27 tax year marks the second full year under a new, unified system. For individuals and businesses operating short-term lets through platforms like Airbnb and Vrbo, understanding these new rules is crucial for compliance and financial planning.

This guide breaks down the current tax rules for short-term lets, explaining what has changed and the practical implications for landlords.

###

## The End of the Furnished Holiday Lettings (FHL) Regime

The special tax regime for [Furnished Holiday Lettings](https://www.accountingfirms.co.uk/blog/losses-on-loans-to-traders-not-all-plain-sailing/) was officially abolished with effect from 6 April 2025 for Income Tax and Capital Gains Tax purposes. This change was enacted through the Finance Act 2025.

The primary objective of this measure was to promote fairness by aligning the tax treatment of short-term lets with that of long-term residential lettings. As a result, income and gains from properties that previously qualified as FHLs are now treated as part of a standard UK property business.

###

## The Four Key Tax Advantages That Have Been Lost

The abolition of the FHL rules means that landlords operating short-term lets have lost four significant tax advantages. These changes are now fully in effect for the 2026/27 tax year.

| Tax Advantage Under FHL Rules | The New Position from April 2025 |
| --- | --- |
| **Full Finance Cost Relief** | Landlords could deduct 100% of their mortgage interest and finance costs from their rental profits. |
| **Capital Allowances** | Eligible to [claim capital allowances](https://www.accountingfirms.co.uk/blog/tax-free-childcare-are-you-eligible/) on the cost of furniture, fixtures, and equipment used in the property. |
| **Capital Gains Tax (CGT) Reliefs** | Properties were treated as trading assets, providing access to valuable reliefs like [Business Asset Disposal](https://www.accountingfirms.co.uk/blog/a-painful-profits-extraction/) Relief (BADR), Roll-over Relief, and Gifts Hold-over Relief. |
| **Pension Contributions** | Profits counted as 'relevant UK earnings', allowing landlords to make tax-advantaged personal pension contributions based on their [rental income](https://www.accountingfirms.co.uk/blog/uneducated-guesswork/). |

###

## Practical Tax Implications for the 2026/27 Tax Year

With short-term lets now integrated into the standard property income framework, landlords must adapt their [tax calculations](https://www.accountingfirms.co.uk/blog/capital-allowances-whats-new/).

### Treatment of Losses

A crucial transitional rule applies to losses incurred under the old FHL regime. Any FHL losses that were not utilised before April 2025 have not been lost. Instead, they can be carried forward and set against future profits generated by the *entire* UK property business, not just profits from the former FHL properties. This provides greater flexibility than the old rules, which restricted FHL losses to be used only against future FHL profits.

### Capital Allowances on Existing Assets

While no new capital allowances can be claimed on expenditure from April 2025 onwards, a transitional provision allows [businesses to continue claiming](https://www.accountingfirms.co.uk/blog/impact-of-tax-planning-on-business-growth/) writing-down allowances on any existing capital allowance pools. This ensures relief is still given for historical expenditure.

### Jointly Owned Properties

The rules for jointly owned properties now align with standard property income rules. Profits and losses are typically split according to the beneficial ownership of the property. For spouses and civil partners, income is presumed to be split 50/50 unless the underlying ownership is unequal and they have formally declared this to HMRC using a Form 17.

###

## Is a Short-Term Let Ever a Trade?

While the vast majority of short-term letting activities now fall under property income rules, a very small number may still be classified as a trade. This typically only applies where the owner provides a very high level of services, more akin to a hotel or bed & breakfast (e.g., providing regular meals, extensive cleaning during stays, and other guest services). In these exceptional cases, the profits might be treated as trading profits, but the bar for this is high and depends heavily on the specific facts.

 

*For detailed legislative changes, refer to Schedule 5 of the Finance Act 2025. HMRC’s Property Income Manual and Capital Gains Manual provide further guidance, particularly from PIM4160 and CG73500 onwards, which cover the abolition of the FHL rules.*

## References

1. [Furnished holiday lettings tax regime abolition at 2](https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition/abolition-of-the-furnished-holiday-lettings-tax-regime#:~:text=permission%20from%20the%20copyright%20holders,more%20in%20each%20tax%20year&text=permission%20from%20the%20copyright%20holders,105%20days%20or&text=concerned,more%20in%20each%20tax%20year&text=concerned,105%20days%20or)
2. [Furnished holiday lettings tax regime abolition at 3](https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition/abolition-of-the-furnished-holiday-lettings-tax-regime#:~:text=rules%20for%20furnished%20holiday%20lettings,the%20tax%20rules%20for%20furnished&text=rules%20for%20furnished%20holiday%20lettings,current%20law%20on&text=with%20those%20for,the%20tax%20rules%20for%20furnished&text=with%20those%20for,current%20law%20on)
3. [Furnished holiday lettings tax regime abolition at 4](https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition/abolition-of-the-furnished-holiday-lettings-tax-regime#:~:text=should%20not%20be%20used%20as,trading%20business%20assets%20no%20longer&text=should%20not%20be%20used%20as,chargeable%20gains%20for&text=a%20long%2Dterm%20let,trading%20business%20assets%20no%20longer&text=a%20long%2Dterm%20let,chargeable%20gains%20for)
4. [Finance Act 2025, s 25](https://www.legislation.gov.uk/ukpga/2025/8/section/25)
5. [Furnished holiday lettings tax regime abolition at 1](https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition/abolition-of-the-furnished-holiday-lettings-tax-regime#:~:text=HM%20Revenue%20%26%20Customs%20Policy,fairness%20and%20aligns%20the%20tax&text=HM%20Revenue%20%26%20Customs%20Policy,The%20measure%20promotes&text=paper%20Abolition%20of,fairness%20and%20aligns%20the%20tax&text=paper%20Abolition%20of,The%20measure%20promotes)
6. [Furnished holiday lettings tax regime abolition at 4](https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition/abolition-of-the-furnished-holiday-lettings-tax-regime#:~:text=holiday%20lettings%20is%20contained%20in,new%20expenditure%20incurred%20on%20or&text=holiday%20lettings%20is%20contained%20in,pool%20%E2%80%94%20any&text=Part%203%20of,new%20expenditure%20incurred%20on%20or&text=Part%203%20of,pool%20%E2%80%94%20any)
7. [Furnished holiday lettings tax regime abolition at 5](https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition/abolition-of-the-furnished-holiday-lettings-tax-regime#:~:text=this%20income%20within%20relevant%20UK,or%20overseas%20property%20business%20as&text=this%20income%20within%20relevant%20UK,either%20the%20UK&text=earnings%20when%20calculating,or%20overseas%20property%20business%20as&text=earnings%20when%20calculating,either%20the%20UK)
8. [Furnished holiday lettings tax regime abolition at 5](https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition/abolition-of-the-furnished-holiday-lettings-tax-regime#:~:text=or%20after%20the%20operative%20date,period%20following%20cessation%20there%20is&text=or%20after%20the%20operative%20date,the%20normal%203%2Dyear&text=must%20be%20considered,period%20following%20cessation%20there%20is&text=must%20be%20considered,the%20normal%203%2Dyear)
9. [Capital Gains Manual - CG73500 - Furnished holiday lettings: general at 1](https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg73500#:~:text=PIM4100%2C%20also%20applied%20for%20Capital,169H%2C%20see%20CG63950P%2C%20and%20in&text=PIM4100%2C%20also%20applied%20for%20Capital,relief%20under%20section&text=Gains%20Tax%20(CGT),169H%2C%20see%20CG63950P%2C%20and%20in&text=Gains%20Tax%20(CGT),relief%20under%20section)
10. [Capital Gains Manual - CG73500 - Furnished holiday lettings: general at 1](https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg73500#:~:text=the%20following%20treatment%20applied%20for,%20If%20the&text=the%20following%20treatment%20applied%20for,of%20the%20chargeable&text=the%20purposes%20of,%20If%20the&text=the%20purposes%20of,of%20the%20chargeable)
11. [Furnished holiday lettings tax regime abolition at 6](https://www.gov.uk/government/publications/furnished-holiday-lettings-tax-regime-abolition/abolition-of-the-furnished-holiday-lettings-tax-regime#:~:text=as%20appropriate%20under%20current%20rules,Impact%20on%20individuals%2C%20households%20and&text=as%20appropriate%20under%20current%20rules,cant%20macroeconomic%20impacts&text=FHL%20properties%20are,Impact%20on%20individuals%2C%20households%20and&text=FHL%20properties%20are,cant%20macroeconomic%20impacts)
12. [Finance Act 2025, Schedule 5 Paragraph 16](https://www.legislation.gov.uk/ukpga/2025/8/schedule/5/paragraph/16)
13. [Property Income Manual - PIM4190 - Repeal of Furnished Holiday Lettings rules - Jointly let property at 1](https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4190#:~:text=Property%20Income%20Manual%20PIM4190%20%2D,property%20and%20income%20Previous%20page&text=Property%20Income%20Manual%20PIM4190%20%2D,interests%20in%20joint&text=Repeal%20of%20Furnished,property%20and%20income%20Previous%20page&text=Repeal%20of%20Furnished,interests%20in%20joint)
14. [Business Income Manual - BIM60515 - Transactions in land: Overview at 1](https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim60515#:~:text=the%20taxation%20of%20onshore%20and,basis%20of%20this%20legislation%20should&text=the%20taxation%20of%20onshore%20and,challenge%20on%20the&text=offshore%20property%20developers,basis%20of%20this%20legislation%20should&text=offshore%20property%20developers,challenge%20on%20the)