Furnished holiday lets: what’s changing in 2026?

After significant changes for furnished holiday lets in 2025, what else could be changing? What was once seen as a smart investment with attractive tax benefits could become more complicated – with recent changes announced in the Autumn Budget, here’s what’s next for furnished holiday let owners.

In this article we’ll cover the following: 

What is a furnished holiday let?

Furnished holiday let (FHL) is the term used to categorise holiday homes in the UK and across Europe.

Most holiday lets that are frequently available, bookable throughout the year, and well furnished will be considered a furnished holiday let by HMRC.

Here’s an overview of the criteria your property will need to meet:

• you must intend to make a profit from your holiday let
• your property must be available for the public to rent for at least 210 days a year
• it must be rented out as commercial accommodation for at least 105 days a year
• each rental must be no longer than 31 days (if a stay is longer than 31 days, it doesn’t count towards the annual total)
• you can’t have more than 155 days of long-term stays (over 31 days) in a year
• renting to friends or relatives for free or at reduced rates doesn’t count towards the annual totals

There are no rules on the level of furnishing your property needs to have to be considered a furnished holiday let. However, it’s generally considered that it needs to be comfortable for guests and equipped for self-catering.

The more you spend on furnishing a holiday let, the higher rent you can charge. You can also offset the cost of upgrading your holiday let against your profits to reduce your tax bill (see more below).

Income tax changes for furnished holiday lets

If you rent out a holiday home, you’ll need to pay tax on the income it generates. But from 6 April 2027, these property income tax rates will rise by two per cent.

This will increase the tax charged on rental property income for basic, higher, and additional rate taxpayers to the following:

• basic rate: from 20 per cent to 22 per cent
• higher rate: from 40 per cent to 42 per cent
• additional rate: from 45 per cent to 47 per cent

Additionally, dividend and savings income tax rises are due from April 2026 and April 2027 respectively. These changes will affect you if you rent out your holiday let property through a limited company and extract profits through dividends.

Holiday let tax rules – what do you need to pay?

The tax rules for holiday lets are slightly different to those for properties in the private rental sector.

The government has dedicated guidance for FHLs, called the Self Assessment helpsheet HS253.

Below is an overview of everything you need to know, from paying income tax to working out capital gains tax if you sell your property in the future.

Income tax for holiday homes

Most holiday let owners will need to complete a Self Assessment by 31 January each year. The income tax and National Insurance contributions you pay will be based on the income you make from letting your holiday home.

Read our complete guide to Self Assessment tax returns for landlords to find out how to register with HMRC, manage your finances, and pay your tax on time.

Remember: income tax rates for holiday let income are increasing from April 2027. More on this above.

Paying tax on a furnished holiday let can be complex and this article is intended as a guide only. Please get advice from a professional tax expert if you’re not sure of anything.

Allowable expenses for holiday lets

You’re still able to offset allowable expenses against your revenue when paying tax on your holiday let. Here are some examples of allowable expenses for holiday lets:

It’s important to note that you can only claim for costs incurred while the property is being used commercially, not when you’re staying there yourself or letting it to friends or family.

Read more: Where are the UK’s best holiday let areas?

Do you have to pay council tax on holiday lets?

If your property is classed as a FHL by HMRC, you won’t need to pay council tax. Instead, you’ll need to pay business rates for holiday lets.

Read our in-depth guide on business rates for more about how they work. You can find out your property’s ‘rateable value’ and an estimate of your annual bill by using the government’s business rates calculator.

What is holiday let VAT?

If your turnover is higher than the VAT threshold of £90,000 from 1 April 2024 (previously £85,000), you’ll need to become VAT-registered. This is unlikely to be necessary for most holiday let owners. However, if you own several properties or other businesses, your turnover is likely to be higher and you may need to register for VAT.

Capital gains tax for holiday lets

From 6 April 2025, when you sell your former FHL property, it’s treated exactly like any other residential property for capital gains tax purposes.

• CGT rate: the sale of the former FHL is subject to the standard residential property CGT rates
• taxable gain: the gain is calculated as the sale price minus the original cost (plus costs of purchase/sale and allowable capital improvements)
• transitional rule: there’s a limited transitional rule for Business Asset Disposal Relief – so if you stopped meeting FHL conditions before 6 April 2025 and then sold the property, you may still be able to claim this, provided the sale occurred within three years

Useful guides for holiday home owners

• A property investor’s guide to holiday let mortgages
• The ultimate guide to buy-to-let property investment
• Energy efficiency guide for landlords – what is an EPC rating?
• What is holiday let insurance?