How do I pay tax on Airbnb or holiday lets?

The growth of short-term letting platforms like Airbnb has made it easier than ever to generate rental income from your property. However, HMRC treats this income differently depending on how your letting is structured, how often it is rented, and whether it qualifies as a furnished holiday let. Paying the right tax and keeping proper records can help you avoid unexpected bills and take advantage of available allowances.

How Airbnb and holiday let income is taxed

Income from Airbnb or short-term holiday lettings is generally classed as property income. You must declare it on your Self Assessment tax return each year if your earnings exceed the relevant allowances. The amount of tax you pay depends on your total income from all sources and whether your property qualifies as a furnished holiday let (FHL).

If you rent out part of your own home, such as a spare room, you might instead qualify for the Rent a Room Scheme, which allows up to £7,500 per year tax-free. For separate properties or entire homes, FHL or property income rules usually apply.

The Furnished Holiday Let rules

A property must meet specific criteria to be treated as a furnished holiday let for tax purposes. HMRC requires that the property:

• Is furnished to a standard suitable for holiday accommodation

• Is available to let for at least 210 days per year

• Is actually let for at least 105 days per year

• Is let commercially with the intention of making a profit

If your property meets these conditions, it qualifies as an FHL. This status provides several tax advantages compared with standard buy-to-let income.

Tax benefits of furnished holiday lets

FHLs are treated as a business rather than as an investment, which opens up several tax advantages:

• You can claim Capital Allowances on furniture, equipment, and fixtures used in the property

• Profits count as earned income, which may help you qualify for pension contributions

• You may claim full deduction for mortgage interest, unlike residential landlords who receive only a 20% tax credit

• When you sell the property, you may be eligible for Business Asset Disposal Relief, which can reduce Capital Gains Tax to 10%

These benefits make FHLs particularly attractive for property owners who run their lettings as a genuine business.

When your property does not qualify

If your property does not meet the FHL criteria, your income is taxed under the normal property income rules. You can still deduct allowable expenses but will not receive business-style reliefs.

Allowable expenses include:

• Letting agent and platform fees (such as Airbnb’s service charge)

• Cleaning, laundry, and maintenance costs

• Utilities, insurance, and council tax

• Repairs and replacement of furnishings

• Professional fees such as accountancy and advertising

You can also claim the £1,000 property allowance if your rental income is modest. If your total rental income is below £1,000 per year, it is fully exempt. If it exceeds £1,000, you can either deduct the allowance or claim actual expenses, whichever gives a better result.

Declaring Airbnb income to HMRC

If your Airbnb or holiday let income exceeds £1,000, you must register for Self Assessment. You can do this online via HMRC’s website. Once registered, you will need to complete a tax return each year reporting:

• Total rental income received

• Allowable expenses or allowances claimed

• The resulting taxable profit or loss

You then pay Income Tax on your net profit at your usual rate (20%, 40%, or 45% depending on your total income).

For example, if you earned £15,000 in Airbnb income and had £6,000 in allowable expenses, your taxable profit would be £9,000. If you fall within the 20% tax band, you would owe £1,800 in tax.

National Insurance considerations

If your Airbnb or holiday letting activity is run as a business, you may also have to pay Class 2 National Insurance contributions. This usually applies if your profits exceed £12,570 per year and you are actively running the operation with the intent to make profit.

If you simply rent out occasionally and do not run it as a business, National Insurance does not normally apply.

VAT on holiday lets

Most individual landlords do not need to register for VAT, but if your gross rental income from furnished holiday lets exceeds £90,000 in any 12-month period, you must register. Once registered, you must charge VAT on your rental income and can reclaim VAT on allowable expenses.

If you expect to approach this threshold, speak with an accountant about whether registering voluntarily could be beneficial.

Airbnb reporting to HMRC

Since 2023, Airbnb and other short-term rental platforms have been required to share host earnings data with HMRC. This means that HMRC is automatically informed of your income, making accurate reporting essential. Failing to declare your Airbnb earnings can result in penalties and interest charges.

Keeping detailed records helps ensure accuracy and provides evidence if HMRC queries your return.

Record keeping requirements

HMRC expects you to keep detailed records of all income and expenses related to your holiday let or Airbnb activity. Keep:

• Invoices, receipts, and bank statements

• Booking records or platform statements

• Utility bills and insurance policies

• Evidence of availability and occupancy (e.g., booking calendars)

You should retain these records for at least five years after the submission deadline of your tax return.

Paying your tax

Once your tax return is submitted, HMRC will calculate the amount due. If you are self-employed or earn more than £1,000 outside PAYE, you may need to make payments on account for the following tax year. These are advance payments towards next year’s bill, based on your current year’s profit.

Tax payments are due by 31 January following the end of the tax year, with a possible second instalment by 31 July if payments on account apply. Setting aside a portion of your Airbnb income each month for tax will help you avoid cash flow issues when payment deadlines arrive.

Example: paying tax on an Airbnb let

Suppose you rent out your coastal holiday apartment for £20,000 a year. Your total expenses, including cleaning, utilities, and Airbnb fees, amount to £7,000. You also meet all the FHL conditions.

Your taxable profit is £13,000, which counts as trading income. You can deduct capital allowances for furnishings, claim full mortgage interest relief, and pay Income Tax at your personal rate. If you are a higher-rate taxpayer, your tax bill would be £5,200 (40% of £13,000).

If your property did not meet FHL conditions, you would pay tax under normal property rules and receive only a 20% credit for mortgage interest instead of a full deduction.

When to seek professional advice

The tax treatment of Airbnb and holiday lets can be complex, particularly if you own multiple properties, rent abroad, or alternate between long-term and short-term tenants. An accountant can help you:

• Determine whether your property qualifies as an FHL

• Optimise expenses and capital allowances

• Register correctly for VAT or National Insurance if required

• Plan for potential Capital Gains Tax when selling your property

Professional advice ensures you meet your obligations while taking advantage of every relief legally available.

Conclusion

Paying tax on Airbnb and holiday lets depends on the nature of your property and how it is used. If it qualifies as a furnished holiday let, it is treated as a business with valuable tax benefits. If not, standard property income rules apply.

Declare all income accurately, keep detailed records, and review your eligibility each year. With careful management and good advice, you can enjoy the rewards of hosting while remaining fully compliant with HMRC requirements.