Tax on Airbnb Income – All You Need To Know

1. Overview: Why Tax Rules Matter to Airbnb Hosts

As of 2026, renting out a house on Airbnb or other similar websites remains a profitable venture for making money. But it is essential to be up to date on the current tax rules. The developments that have taken place over the past year is particularly the abolition of Furnished Holiday Lettings (FHL) and the introduction of Making Tax Digital (MTD) that have resulted in a major shift in the taxation of Airbnb hosts.

2. Furnished Holiday Lettings (FHL) Tax Regime:

Until April 5, 2025, individuals operating FHL properties were entitled to the following highly favorable tax treatment:

Claiming the full deduction of mortgage interest against taxable rental profits.

Claiming capital allowances on furniture and fittings.
Relief in kind when selling the business at a 10% Capital Gains Tax rate using Business Asset Disposal Relief (BADR).

Eligibility for pension tax relief due to profits being treated as ‘relevant earnings.’ (taxscape.deloitte.com)
But from April 6, 2025, the FHL tax regime was abolished:

The tax relief on mortgage interest rates changed to a 20% tax credit, in line with the standard buy-to-let scheme. (bdo.co.uk)

The capital allowances on new furnishings were abolished, except for the Replacement of Domestic Items Relief. (gov.uk)

The BADR and rollover reliefs were abolished; instead, gains on disposal are subject to standard residential rates of CGT (18% basic, 24% higher rate). (mondaq.com)

FHL rental income is no longer “relevant earnings” for pension contributions or Class 2/3 NICs.

Claims on existing capital allowances pools and reliefs were possible if the disposal occurred before the deadline, but only if it was after April 2025; however, all benefits ended after April 2025. (gov.uk)

These changes are estimated to produce an additional £35 million in tax revenue in 2025-26, increasing to £245 million in 2028-29.

3. More Taxes on Rental Income from 2027

From April 2027, landlords will have to pay an additional 2% tax on their rental income. On top of this, changes to holiday let tax rules mean that landlords will take home even less money than before.

New Quarterly Tax Reporting from 2026

From April 2026, if you earn over £50,000 a year from property, you will have to report your income to HMRC four times a year instead of once, using HMRC’s new digital system.

4. Making Tax Digital (MTD) for Property Income

From April 6, 2026, landlords and Airbnb hosts with property income over £50,000 per year will be required to submit their tax returns quarterly to HMRC under MTD for Income Tax. This will apply to those with income over £20,000 by 2028. (moneyweek.com)

Important details:

Digital-compliant software is now compulsory.

A 12-month penalty-free period applies—only late submissions will incur penalties after four missed submissions. (moneyweek.com)

This new system is intended to improve tax reporting accuracy and compliance, but it also increases administrative burdens for hosts.

5. Rent-a-Room Relief: Still a Valuable Benefit

If you rent out a room in your main residence and if it’s a spare room, you could be eligible for Rent-a-Room relief:
For 2025-26, the tax-free allowance is £7,500 per year (or £3,750 each if shared with other owners)

However, if gross receipts exceed this threshold, you can choose to pay tax based on actual profit (Method A) rather than gross receipts alone (Method B). (gov.uk)

This remains one of the only clear-cut tax reliefs available to casual hosts.

6. Platform Reporting and HMRC Transparency

From January 1, 2024, digital platforms (such as Airbnb) are obliged to submit hosts’ income data to HMRC directly under the DAC7 directive. (upgradedpm.com)

Important points:

HMRC will automatically receive income notifications.
It is essential for hosts to verify their Self Assessment returns to include all income and expenses.

The deadline for submission remains January 31 after the end of the tax year. (upgradedpm.com)

This minimizes the danger of underreporting but also eliminates the benefit of underreporting by omission.

7. Tourist Levies and Local Charges: Emerging Risks

Although not a tax per se, local “holiday taxes” or visitor charges may impact the profitability of short-term rentals:

Proposals are underway to enable mayors of regions to introduce additional charges for overnight stays (including Airbnbs), potentially up to £2 per person per night, which can quickly mount for families. (thescottishsun.co.uk)

Although not yet operative, these charges may soon become an additional layer of expense for both hosts and visitors.

8. Summary: Key Impacts for Airbnb Hosts (2026)

• FHL scheme abolished (from April 2025): FHL scheme is no longer qualifies for preferential tax treatment.
• Property income tax rates to rise (from April 2027): all rates will go up by 2 percentage points.
• MTD becomes compulsory (from April 2026): quarterly digital submissions for high earners.
• Rent-a-Room relief retained: up to £7,500 tax-free if you let a room in your main home.
• Platform reporting is mandatory: HMRC gets your income information directly.