Most landlords don’t really think about VAT too much - at least once they have discovered that opportunities for them to recover the VAT they incur on expenditure is severely limited.

Furnished Holiday Lettings (FHLs) have long occupied a unique space in the UK tax system and have become increasingly popular amongst landlords particularly since the advent of websites such as Airbnb.

While they resemble residential rental properties, for VAT purposes they are treated as a a taxable supply of holiday accommodation, similar to hotels. With the special FHL regime having been abolished from April 2025, it is easier than ever for affected landlords to overlook how VAT can apply and what that means – both good and bad – for them.

Unlike standard residential lets which are VAT exempt, FHL income can be treated as a taxable supply for VAT where it meets the threshold to qualify as short-term accommodation, similar to hotels.

If VAT is applicable then the standard rate of 20% must be charged, subject to special rules for longer-term stays detailed below, once your “VATable” supplies, including FHL income, pass the VAT registration threshold - this is currently £90,000 during a rolling12 month period.  This means you should carefully monitor turnover monthly.

When considering the threshold, you cannot split properties between spouses or entities to avoid registration unless they are genuinely separate and independently operated businesses. Of course, VAT registration can have a significant impact on profitability and in some very limited circumstances, you may even be better off maintaining turnover at levels below the threshold.

Once registered for VAT, you must:

• Charge VAT on all holiday let invoices

• Display your VAT number

• Submit VAT returns

• Keep full VAT records

• Reclaim VAT on allowable business expenses (e.g., cleaning, utilities, refurbishments)

If VAT registered, you can reclaim VAT on, amongst other things:

• Repairs and maintenance

• Utilities (some may be at reduced rates)

• Agent commissions

• Refurbishment costs

• Furniture and equipment

Special rules for long-term accommodation

FHL type accommodation is subject to a special VAT rate after twenty-eight consecutive days of stay.  From day twenty-nine onwards, VAT is charged on a reduced value of the supply (typically 20% of the full charge).   This can result in an effective VAT rate of around 4%, although this is not a flat rate and depends on the specific circumstances. Elements such as cleaning and meals may be relevant in determining the value subject to VAT. Specialist advice should always be sought before applying any rate in such circumstances, as indeed it should be before any FHL-style letting is carried out.