Furnished Holiday Lets (FHL) and Serviced Accommodation Accounting

The Furnished Holiday Let (FHL) regime ended on 6 April 2025. From that date, properties previously qualifying as FHLs are taxed as ordinary residential property businesses. The abolition removed five specific FHL benefits: capital allowances on furniture and integral features, loss offset against general income, pension relief on FHL profits, Business Asset Disposal Relief at 10%, and the spousal income-shifting flexibility for jointly-held FHLs.

For Harrow landlords running serviced accommodation around Wembley Stadium events, Airbnb on Heathrow-corridor properties, or short-term lets in Pinner village, the post-abolition tax landscape is materially worse. This guide covers what changed, what survived, and how to structure a serviced accommodation business going forward.

What FHL abolition removed

Five specific reliefs were withdrawn:

1. 1Capital Allowances on furniture, kitchen, integral features (heating, lighting, plumbing). Replaced by the Replacement of Domestic Items Relief which only covers like-for-like replacement, not the original purchase.
2. 2Sideways loss relief: FHL losses could previously offset other taxable income in the year. Post-abolition, losses can only carry forward against future property income.
3. 3Pension relief: FHL profits counted as relevant earnings for pension contribution relief, allowing landlords to make tax-relieved pension contributions up to £60k. Post-abolition, FHL income is investment income and does not qualify.
4. 4Business Asset Disposal Relief at 10%: gone, replaced by ordinary residential CGT at 18%/24%.
5. 5Income-shifting flexibility: FHL profits could be apportioned freely between spouses regardless of legal title. Post-abolition, the standard 50/50 default and Form 17 rules apply.

What survived the abolition

Some elements transitioned across:

• Capital allowances pools claimed before April 2025 continue to receive writing-down allowances on the existing balance until exhausted.
• Furnished Lettings VAT treatment: serviced accommodation that meets the "hotel-like service" threshold remains within the VAT regime as before.
• Business rates eligibility for properties let 140+ days per year continues, with no income tax FHL classification implications.
• Inheritance Tax Business Property Relief: never applied to standard FHLs in any meaningful way and is unchanged.

The new loss-offset regime

Where an FHL operated at a loss in earlier years, that loss could offset other income (employment, dividends) in the same tax year. From April 2025:

• New losses can only carry forward against future property income (residential or commercial).
• Losses cannot offset employment, self-employment or investment income.
• Existing pre-April 2025 FHL losses brought forward retain their character and remain useable against future property income, but cannot be used as sideways relief.

The £90,000 VAT registration trap

Serviced accommodation is a VAT-relevant supply. Standard residential lettings are exempt from VAT, but where the lease is short-term and accompanied by hotel-like services (cleaning between guests, towels, linen change, on-call concierge), the income is standard-rated.

The 2026 VAT registration threshold is £90,000 of taxable turnover in any rolling 12 months. The trap:

1. 1A serviced accommodation operator with two units in Wembley at £180/night for 280 nights each per year hits £100,800 of taxable turnover.
2. 2VAT registration becomes mandatory.
3. 3The operator must charge 20% VAT on bookings, eroding pricing competitiveness against unregistered competitors.
4. 4Input VAT on furnishing, refurbishment and operating costs becomes recoverable, partly offsetting the price drag.
5. 5For most operators, the breakeven point where VAT registration becomes neutral or beneficial is at substantial scale (5+ units).

Accounting for Airbnb, Booking.com and Vrbo fees

Platform commission accounting matters because the gross-vs-net treatment shifts both rental profit and VAT registration testing:

• Airbnb: typically charges hosts 3% of the booking subtotal. Some markets are 14-16% (host-only mode). The host receives the net of fees but reports gross income with the fee as a deductible expense.
• Booking.com: 15% commission, deducted from payout. Same gross-up rule.
• Vrbo: pay-per-booking model (8% per booking) or annual subscription. Both gross-up.
• Cleaning fees collected from guests: gross income, with the actual cleaning cost as a separate deductible expense.
• Platform-charged guest fees (Airbnb service fee, Booking.com booking fee): not host income, exclude from gross.

Most accounting software treats the platform payout as gross income with separate fee lines, but landlords copy-pasting bank deposit figures often understate gross income by 12-18%, falling foul of HMRC enquiry if challenged on Airbnb-vs-bank reconciliation.

Business rates vs council tax for short-term lets

A property let for 140+ nights per year on a short-term basis qualifies for business rates rather than council tax in England. The maths:

• Business rates eligibility requires evidence of 140+ short-term let nights per year (booking records, platform statements).
• Small Business Rate Relief: 100% relief for rateable value below £12,000, tapered to £15,000.
• Most one-bedroom Harrow Airbnbs sit comfortably below the £12,000 threshold and pay zero business rates.
• Council tax on the same property would typically be £2,000-£3,500 per year, so the saving is real.

Limited company structure for serviced accommodation

Post-FHL abolition, the case for serviced accommodation in a limited company is stronger than for standard residential lettings:

• Section 24 still applies in the personal name (mortgage interest restricted to 20% credit).
• A limited company deducts mortgage interest in full.
• The serviced accommodation activity meets the "active business" test for Section 162 Incorporation Relief more readily than passive AST landlording.
• Loss treatment: limited company losses carry forward against future trading profits with more flexibility than the post-abolition personal regime.

For operators above 3 units or £90k+ of turnover, the limited company structure increasingly pays for its compliance overhead. Below that scale, the friction usually exceeds the benefit.