Holiday Let Tax 2026: Income, Sale & Acquisition Guide

Corrected on 2026-08-03: The "What you can deduct" list previously included "a proportion of mortgage interest at the basic rate (20%)" as an allowable expense. Mortgage interest is not deductible under ITTOIA s.272A(4) for income-tax payers — the 20% figure is a tax reducer applied to the tax bill, not a deduction from taxable profit, and companies are outside the restriction entirely. Corrected following re-verification against legislation.gov.uk/ukpga/2005/5/section/272A.

Running a UK holiday let means navigating four separate taxes, each on a different transaction: income tax on the rent you earn, Capital Gains Tax when you sell, Stamp Duty Land Tax when you buy, and potentially VAT if your gross turnover gets large enough. None of these is complicated in isolation. The confusion arises because they interact — and because the Furnished Holiday Let (FHL) tax regime was abolished in April 2025, removing a set of rules hosts had relied on for decades.

This guide maps the current position across all four.

This is general guidance, not tax advice. Your position depends on your specific facts — including property ownership structure, income level, and how the property is used. Confirm with a qualified accountant before relying on any treatment.

Income Tax on Holiday Let Rental Income

Holiday let income is taxable in the UK. Since the FHL regime was abolished on 6 April 2025, that income is taxed as property income under the UK property business rules — the same way a standard buy-to-let is taxed.

The practical effect of this change, from HMRC's own policy paper on the abolition:

• Finance costs — mortgage interest is no longer fully deductible. Instead, it's restricted to a 20% basic-rate tax credit. For a higher-rate taxpayer with a mortgage, this typically doubles the effective cost of borrowing against rental income.
• Capital allowances — no new capital allowances on furniture, fixtures, or equipment. Replacement items are claimed as Replacement of Domestic Items Relief in the year of replacement. Initial purchases don't qualify. If you built up a pool before April 2025 it survives the abolition — see our capital allowances for furnished holiday lets guide.
• Tax bands — holiday let income is added to your other income and taxed at your marginal rate (20%, 40%, or 45% depending on total income). Property income uses self-assessment; profits go on your UK property income pages.

What you can deduct: allowable expenses against holiday let income include letting agent fees, cleaning and laundry, insurance, repairs and maintenance (not improvements), and council tax/business rates (if you pay them). Mortgage interest is not on this list — for income-tax payers it no longer counts as a deductible expense at all; instead it reduces the tax bill directly via the 20% basic-rate reducer described above. (Companies are outside this restriction and continue to deduct finance costs as a normal expense.) A qualified accountant can confirm which costs in your specific situation qualify. Our furnished holiday let allowable expenses guide works through the full deductible list, the repairs-versus-improvements line, and private-use apportionment.

For the full HMRC-specific treatment — trading income vs property income, Class 1 NICs risk, and HMRC manual references — see our HMRC and Furnished Holiday Lets guide.

Capital Gains Tax on Holiday Let Disposals

When you sell a UK holiday let property, the gain is subject to Capital Gains Tax at the residential property rates:

Rate	Applies when	Current rate (2025–26)
Basic rate	Your total taxable income (including the gain) stays within the basic-rate band	18%
Higher rate	Your total taxable income (including the gain) exceeds the basic-rate threshold	24%

Source: GOV.UK — Capital Gains Tax rates and allowances.

What changed under FHL abolition: former FHL properties could access Business Asset Disposal Relief (10% rate on qualifying disposals up to the lifetime limit), Rollover Relief, and Holdover Relief. All of these were removed from 6 April 2025. Disposals of properties that held FHL status are now taxed at standard residential CGT rates.

The annual CGT exemption for individuals was reduced significantly in 2023–2024 and was £3,000 for 2024–25 and 2025–26. Check the current allowance on GOV.UK when calculating — it has changed in recent years.

Reporting: UK residential property CGT disposals must be reported within 60 days of completion, and any tax due paid within that window, using the UK Property reporting service on HMRC online (source: GOV.UK — Report and pay Capital Gains Tax: if you sold a property in the UK).

Stamp Duty Land Tax on Holiday Let Purchases

When you buy a holiday let property in England or Northern Ireland, you pay Stamp Duty Land Tax at the additional dwelling rates — because buying a holiday let means you'll own more than one residential property.

The current rates (from 1 April 2025 per HMRC guidance on buying an additional residential property):

Property value	SDLT rate
Up to £125,000	5%
£125,001–£250,000	7%
£250,001–£925,000	10%
£925,001–£1.5m	15%
Above £1.5m	17%

For context: buying a holiday let at £350,000 in 2026 means SDLT of approximately £25,000 under these rates (5% × £125,000 = £6,250 + 7% × £125,000 = £8,750 + 10% × £100,000 = £10,000).

The 5% additional-dwelling surcharge replaced the previous 3% surcharge. It has been in effect since 31 October 2024 (Autumn Budget 2024) and the current rate structure above was confirmed from 1 April 2025. See our dedicated holiday let stamp duty guide for the full breakdown including reliefs and the interaction with Scotland/Wales where different taxes apply.

Scotland: Land and Buildings Transaction Tax (LBTT) applies instead, with an Additional Dwelling Supplement (ADS) — currently 8% on top of standard LBTT rates (check Revenue Scotland for current rates, as these have changed more than once).

Wales: Land Transaction Tax (LTT) applies, with a higher residential rates surcharge for additional dwellings.

VAT — When Holiday Letting Triggers Registration

Most holiday let hosts are not VAT-registered and do not need to be. The threshold for mandatory VAT registration is when your taxable turnover exceeds £90,000 in any rolling 12-month period (source: GOV.UK — Calculate your taxable turnover for VAT, threshold confirmed as £90,000). This is gross rental income, not profit.

For a typical UK holiday let host with one or two properties, annual gross rental income rarely exceeds £90,000. But for hosts with multiple high-value properties — particularly in London or premium rural destinations — the threshold is reachable.

Holiday letting is a VATable supply. If you exceed the threshold, you charge VAT at 20% on your rental income and must register with HMRC. Voluntary registration below the threshold is possible but rarely beneficial unless you have significant VAT costs to recover.

Business Rates vs Council Tax (the Tax-Classification Question)

Holiday let properties don't fit neatly into the residential council tax system. Whether you pay council tax or business rates depends on availability and actual letting days per year:

• Business rates apply if your property is available to let commercially for at least 140 days/year (England/Scotland) or 252 days/year (Wales), and actually let for at least 70 days/year (England/Scotland) or 182 days/year (Wales).
• Council tax applies if you don't meet those thresholds — and most English councils now charge a 100% council tax premium on second homes.

For the full decision tree and the Small Business Rate Relief pathway, see our holiday let business rates guide and council tax for holiday lets guide.

Action Checklist

• Confirm your income tax position post-FHL abolition with an accountant — particularly if you previously relied on full mortgage interest deduction or capital allowances
• Check your 60-day CGT reporting obligation — applies from completion date, not tax year end
• Budget for SDLT additional-dwelling rates (5% surcharge minimum) before purchasing any new holiday let property
• Check your trailing 12-month gross rental income against the £90,000 VAT threshold if you operate multiple properties
• Confirm which tax regime applies (council tax vs business rates) for each property and apply for SBRR if eligible

Sources

• GOV.UK — Abolition of the Furnished Holiday Lettings Tax Regime
• GOV.UK — SDLT: buying an additional residential property
• GOV.UK — Capital Gains Tax rates and allowances
• GOV.UK — Calculate your taxable turnover for VAT

---

This post covers general principles of UK taxation as they apply to holiday lets in England, Scotland, and Wales. Tax law changes frequently — always verify current rates and thresholds on GOV.UK or with a qualified accountant. This is guidance, not advice.