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Running an Airbnb or short-term rental property in London can generate significantly higher gross income than a traditional long-term tenancy. However, landlords need to understand how that income is taxed — particularly following major changes to the taxation of furnished holiday accommodation.
The Furnished Holiday Lettings (FHL) tax regime was abolished from April 2025, meaning many of the tax advantages previously available to qualifying short-term rental properties no longer apply.
At the same time, HMRC is receiving more information directly from online booking platforms, while Making Tax Digital for Income Tax began applying to some landlords from April 2026.
In this guide, we explain the main Airbnb tax rules London landlords should understand in 2026.
Important: This guide provides general information and should not be considered tax advice. Tax treatment depends on individual circumstances, so landlords should consult a qualified accountant or tax adviser.
Do You Have to Pay Tax on Airbnb Income in the UK?
In most cases, yes.
Income generated by renting a property through Airbnb or another short-term rental platform will generally need to be declared to HMRC.
The actual calculation can be more complicated, particularly where mortgage finance costs, jointly owned properties or other income are involved.
*The precise amount of property income falling into each band depends on your other taxable income and available allowances. The Personal Allowance is progressively withdrawn where adjusted net income exceeds £100,000.
For many London property owners who already receive employment, business or investment income, some or all of their Airbnb profits may therefore fall within the higher tax bands.
Important: Property Tax Rates Are Changing From April 2027
London landlords should also be aware of another significant tax change already announced by the government.
From 6 April 2027, separate Income Tax rates are due to apply to property income in England:
This means property taxation is set to become more expensive for many individual landlords from the 2027/28 tax year.
What Happened to Furnished Holiday Lettings Tax Relief?
This is one of the most important changes for Airbnb landlords.
Historically, qualifying short-term rental properties could benefit from the Furnished Holiday Lettings (FHL) regime.
Properties meeting the required conditions could receive tax treatment that was more favourable than standard residential letting.
However, the government abolished the FHL regime from:
6 April 2025 for individuals
As a result, short-term and long-term property letting are now much more closely aligned for Income Tax purposes.
This change is particularly relevant in London, where professionally operated short-term rental properties previously had the potential to qualify as FHL businesses.
What Airbnb Expenses Can Landlords Deduct?
Although the FHL regime has disappeared, landlords can generally continue deducting qualifying revenue expenses incurred wholly and exclusively for the purpose of the property rental business.
Depending on the circumstances, these may include:
- Airbnb and booking platform commissions
- property management fees
- cleaning costs
- laundry and linen
- utilities paid by the landlord
- internet and Wi-Fi
- insurance
- repairs and maintenance
- accountancy fees relating to the rental business
- advertising and marketing
- replacement of qualifying domestic items
- certain service charges and ground rent
- consumables supplied to guests
The distinction between repairs and capital improvements is particularly important.
Replacing a broken item with a broadly equivalent modern replacement may potentially qualify as a revenue expense. Substantially improving or extending a property is more likely to constitute capital expenditure and may not be immediately deductible against rental income.
Can You Deduct Airbnb Management Fees?
Generally, property management costs incurred for the purpose of running the rental business can be deductible when calculating taxable rental profit.
For example, if a London landlord generates £40,000 in gross booking revenue and pays £7,200 in management fees, those management costs may reduce the property’s taxable profit, subject to the normal tax rules.
Professional Airbnb management can include services such as:
- listing creation and optimisation
- dynamic pricing
- guest communication
- check-in coordination
- cleaning management
- maintenance coordination
- guest vetting
- revenue management
This means landlords should look at net income after operating expenses and tax, rather than comparing short-term and long-term letting purely on gross rental income.
What About Mortgage Interest?
Mortgage interest is an important consideration for personally owned residential rental properties.
Individual landlords generally cannot simply deduct residential mortgage interest from rental income in the same way as an ordinary operating expense.
Instead, qualifying residential finance costs are generally dealt with through a basic-rate tax reduction.
For the 2026/27 tax year, that rate is generally 20%.
This can have a particularly significant impact on highly leveraged London properties because mortgage interest may represent a substantial proportion of annual rental income.
From April 2027, when the new property Income Tax rates are scheduled to take effect, the government has announced that residential finance cost relief will be calculated using the new 22% property basic rate.
The £1,000 Property Allowance
Individuals can potentially benefit from the £1,000 property income allowance.
Where gross property income is £1,000 or less, qualifying income may potentially be covered entirely by the allowance.
Where income exceeds £1,000, landlords may in some circumstances choose between:
Option 1: deducting their actual allowable expenses
or
Option 2: using the £1,000 property allowance instead.
You cannot normally use the £1,000 allowance and deduct the same ordinary expenses as well.
For a professionally operated London Airbnb, actual expenses will frequently exceed £1,000, making the standard expense calculation more relevant.
Renting a Room in Your Main Home
Different rules may apply if you are renting furnished accommodation within your main home rather than operating an entire investment property.
Under the Rent a Room Scheme, qualifying homeowners and tenants can potentially receive up to:
£7,500 per year tax-free
The threshold is normally reduced to £3,750 where the rental income is shared with another person.
This can potentially apply to rooms advertised through Airbnb, provided the relevant Rent a Room conditions are satisfied.
It should not be confused with the £1,000 property allowance.
Does Airbnb Report Your Income to HMRC?
Landlords should assume that income generated through major digital booking platforms is increasingly visible to tax authorities.
UK digital platform reporting rules require qualifying platforms to collect information about sellers and report certain information to HMRC.
For property rentals, information collected can include details about the seller and the address of the rental property.
Platforms are also required to provide sellers with information that has been reported, helping them reconcile their platform earnings with their tax records.
Importantly, platform reporting does not create a new Airbnb tax.
It simply gives HMRC more information that can be compared against taxpayers’ declarations.
Landlords should therefore maintain accurate records of:
- gross booking income
- Airbnb or platform fees
- cancellations and refunds
- cleaning expenditure
- management fees
- repairs
- utilities
- insurance
- mortgage finance costs
- other property-related expenses
Making Tax Digital for Airbnb Landlords
Another major change affecting landlords is Making Tax Digital for Income Tax (MTD).
From 6 April 2026, MTD began applying to qualifying sole traders and landlords whose combined qualifying gross income from self-employment and property exceeds £50,000.
Further phases are scheduled:
Landlords within MTD generally need to use compatible software to maintain digital records and send quarterly updates to HMRC.
For London landlords generating substantial Airbnb revenue, this makes accurate digital bookkeeping increasingly important.
What If the Airbnb Property Is Owned Through a Limited Company?
The taxation of a property owned by a limited company is different from personal ownership.
Rental profits belong to the company and are generally subject to Corporation Tax rather than the owner’s personal Income Tax.
Mortgage interest is also treated differently within companies.
However, this does not necessarily mean that a limited company will always produce a lower overall tax bill.
Owners may subsequently face additional taxation when extracting money from the company through salary, dividends or other methods.
Dividend tax rates also changed from April 2026, making a proper comparison even more important.
Changing the ownership of an existing personally held property to a limited company can potentially trigger significant tax and transaction costs, including Capital Gains Tax and Stamp Duty Land Tax.
Professional tax advice should therefore be taken before changing ownership structures.
Council Tax or Business Rates?
Taxation is not limited to Income Tax.
Depending on how a short-term rental property is operated, it may potentially fall within either Council Tax or Business Rates.
For self-catering accommodation in England, business-rating treatment depends on conditions including how long the property is commercially available and how many nights it is actually let.
However, London landlords need to be particularly careful because the London 90-day planning rule can limit the number of nights a normal residential property can legally be short-let without planning permission.
Council Tax, Business Rates and planning rules are separate legal regimes, so satisfying the conditions of one does not automatically mean that the property complies with another.
Don’t Forget London’s 90-Day Rule
Tax compliance does not override London’s short-term letting restrictions.
For normal residential properties in Greater London, an entire home can generally be used for short-term accommodation for up to 90 nights per calendar year without specific planning permission, provided the relevant statutory conditions are met.
If you want to short-let the property for more than 90 nights, planning permission will normally be required.
Landlords should also check:
- leasehold restrictions
- freeholder consent
- mortgage conditions
- insurance requirements
- local planning rules
A property can be fully compliant with HMRC while still breaching planning, leasehold or mortgage restrictions.
Example: Taxable Profit on a London Airbnb
Consider a London landlord generating the following annual results:
This is deliberately simplified. Mortgage finance costs, capital expenditure, ownership structure, other income and individual circumstances could materially change the final tax calculation.
The important point is that tax is generally based on taxable profit rather than headline Airbnb revenue.
Airbnb vs Long-Term Letting: Does Tax Change the Calculation?
Following the abolition of the FHL regime, the tax distinction between short-term and traditional residential letting has narrowed significantly.
This means landlords considering Airbnb should focus primarily on the underlying economics:
Short-term letting revenue
minus
management and operating costs
minus
tax
equals
net landlord return
A well-managed London short-term rental may still generate materially higher revenue than a long-term tenancy, particularly in high-demand central locations.
But the appropriate strategy depends on the property, location, planning status, mortgage, lease restrictions and the owner’s tax position.
Key Tax Changes London Airbnb Landlords Should Know
Frequently Asked Questions
Do I have to declare Airbnb income to HMRC?
Usually, yes. Rental income generated through Airbnb may need to be declared to HMRC depending on the amount received and the reliefs available to you.
Does Airbnb report my earnings to HMRC?
Digital platform reporting rules mean qualifying platforms report information about sellers and their platform earnings to HMRC. Landlords should therefore ensure that their own records and tax declarations are accurate.
How much Airbnb income is tax-free?
Individuals may potentially qualify for the £1,000 property allowance. If you rent furnished accommodation within your main home, the separate Rent a Room Scheme can potentially provide up to £7,500 of tax-free rental receipts.
Can I deduct Airbnb management fees from tax?
Qualifying management fees incurred wholly and exclusively for the property rental business can generally be treated as an allowable expense when calculating property profit.
Can I deduct Airbnb cleaning fees?
Cleaning, laundry and linen costs incurred in operating a short-term rental can generally be allowable business expenses, subject to the normal tax rules.
Can I deduct my mortgage from Airbnb income?
The capital repayment of a mortgage is not an allowable expense. For individual residential landlords, qualifying mortgage interest and other finance costs are generally dealt with through a basic-rate tax reduction rather than being deducted directly from rental income.
Is Airbnb still classed as a Furnished Holiday Let?
The special Furnished Holiday Lettings tax regime was abolished from April 2025. Properties that previously qualified no longer receive the former FHL tax treatment.
Is Airbnb income taxed differently from normal rental income?
Following the abolition of the FHL regime, the tax treatment of short-term and long-term residential property income has become much more closely aligned. The precise treatment still depends on the circumstances and ownership structure.
Do I need an accountant for Airbnb income?
It is not compulsory in every case, but professional advice can be valuable where you have substantial rental income, mortgages, multiple properties, joint ownership, company ownership, overseas residence or Making Tax Digital obligations.
Conclusion
Airbnb can remain an attractive strategy for London landlords, but the tax environment has changed significantly.
The abolition of the Furnished Holiday Lettings regime, increased reporting by digital platforms, the introduction of Making Tax Digital and the planned introduction of higher property-specific Income Tax rates from April 2027 all make accurate financial management increasingly important.
For landlords, the key question should therefore not simply be:
“How much can my property earn on Airbnb?”
Instead, consider:
“What will my property generate after management costs, operating expenses, financing and tax?”
At StayinLondon, we help London property owners understand the potential performance of their property in the short, medium and long-term rental markets.
If you’re considering Airbnb or short-term letting, contact StayinLondon for a rental income assessment and find out which letting strategy could deliver the strongest return for your property.
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