Published: 03 June 2026
It is fair to say that the UK tax landscape for property letting in general is witnessing a significant shift. For those individuals that currently own property assets or homes that operate as short-term holiday lets, it makes sense to understand the full position, any changes that are current or expected, and how any income tax will be properly applied in 2026 and beyond.
The largest transformations in this area are connected to two major structural changes in the way income tax is calculated, observed and reported. Firstly, the tax advantages that were evident for furnished holiday lets (FHL) have largely been removed in the last 12 months. Second, the digitisation of tax recording through the UK’s Making Tax Digital (MTD) scheme is being rolled out in annual phases that began in April 2026.
The effect will undoubtedly lead to a more standardised tax regime that is subject to closer scrutiny. For landlords and short-term holiday let property owners, this may mean more than compliance. It might also mean a new assessment for the viability of letting models on the property they own.
Furnished Holiday Lettings Changes of April 2025
Before April 2025, furnished holiday lettings (FHL) would often qualify for favourable treatment in the UK tax regime as opposed to other residential property income. These included:
- Full relief on finance costs
- Access to capital allowances on furnishings and equipment
- Ability for profits to count as relevant UK earnings for pension contribution
When the April 2025 changes came into effect all of these were duly withdrawn with HMRC confirming that preferential treatment was removed for furnished holiday lettings, alongside similar certain capital gains tax reliefs.
The outcome here was that any income earned from former furnished holiday lettings would now be treated as standard residential property income, with:
- Mortgage interest relief restricted in line with broad landlord rules
- Capital expenditure treated differently than pre-April 2025 regime
Why Does this Matter for Short-Term and Holiday Let Owners?
Historically, the categorisation of short-term and holiday let properties would once have had a significant impact on the tax structure in the UK. To qualify as a ‘holiday let’ meant fulfilling the FHL criteria set by HMRC that stated:
- The property was available to let for at least 210 days per year
- Actually let for at least 105 days
- Let on a commercial basis to the public
This made many properties across the country fall into a specific legal tax classification
However, the general market term of a short-term let remained broader and more informal. This could then encompass:
- Airbnb-style of rentals
- Serviced apartments
- Weekly lets
- Weekend lets
- Corporate short stays
Short-term lets therefore refer to the usage of the property, without any strict legal or tax definition.
The Changes in Definition
Short-term lets and holiday lets are now treated the same under HMRC rules. They both qualify as standard property income for tax purposes.
Although they are aligned for tax, they may still occasionally differ as terms for any operational or marketing context. As examples:
- Holiday let – implies a leisure market for coastal homes
- Short-term let – implies business travel or city lets related to employment
There is one remaining crucial element to consider for any additional regulation outside of taxation. The application of licensing and planning rules may still refer to these terms, depending on the location of your property in the UK. It always advised checking, and perhaps reassessing, with your property consultant service providers, where appropriate, to see if the recategorisation has any bearing on your portfolio.
Impact and Issues
The direct implications of the FHL changes were both strategic and financial for property owners that operated with short-term letting. The most significant impact was undoubtedly that income from holiday lets no longer counts as relevant UK earnings for pension tax relief for landlords. It meant that many owners immediately observed:
- Higher effective taxable income
- Reduced flexibility in pension contributions
- Less advantage for finance costs
- A need to reassess property profitability
- A smaller gap and distinction between holiday lets and long-term traditional rentals
This undoubtedly had a real-world market impact as some landlord properties would now be considered too expensive to manage or less tax efficient. Many considered switching to long-term rental structures or perhaps moving the property on.
Making Tax Digital
The Making Tax Digital for Income Tax scheme is a UK government initiative that requires taxpayers to keep digital records and submit tax records to HMRC online, every quarter. Qualifying income includes a gross amount before expenses for:
- Property letting
- Self-employment
- A combination of both
Rather than make wholesale changes at once, the rollout is phased by income strata:
- April 2026 – applies to qualifying income over £50,000
- April 2027 – applies to qualifying income over £30,000
- April 2028 - applies to qualifying income over £20,000
With a good understanding of the market for prime property short-term lets in the UK, it becomes clear that 2026 and 2027 are the landmark dates for qualification. All of which dictates that a solid understanding of the steps to take for income tax and MTD is required immediately.
Although the sensible option is always to consult a professional provider or individual, arming oneself with the fundamental responsibilities is a good step to immediately take.
Steps towards Successful MTD
- Confirm Income Level
A quick calculation of gross property income will tell you what year your income falls in scope. - Reassess Profitability
Factor in any post -FHL advantages for a long-term strategy - Transition to Digital Tools
Ensure that you, or your accountant services, are using software that can integrate with HMRC.
The Simple Strategies
As the tax treatments and responsibilities evolve over the next few years, it presents an interesting timeline to adjust any strategy you may have for short-term let portfolio properties. These elements are increasingly guiding landlords towards four clear paths:
- Continue to Let Short Term
Where occupancy rates are strong and pricing can offset new tax obligations - Shift to Letting Long Term
More predictable income streams are created long term with simple tax treatments - Operate with a Mixed Portfolio
Look to the market for signals and where to diversify letting status - Exit the Market
The increased admin complexity and reduced tax efficiency is removed through disposal
To stay informed of how your short-term let portfolio and holiday lets can work for you in the most tax efficient way, sign up to our newsletter for information and updates. The Sotheby’s lettings team are also always happy to talk and ready to help you understand additional changes, developments and market trends across the entire UK prime property landscape.
