Different lets, different tax rules for your properties

If you’re a landlord with multiple properties across your portfolio, you might think the tax treatment is straightforward: rental income comes in, expenses go out, and you pay tax on the difference. However, the reality is considerably more nuanced. The type of let you operate—whether it’s furnished or unfurnished, holiday or long-term residential—can significantly affect your tax obligations under HMRC rules. Understanding these distinctions isn’t just important for compliance; it can also help you optimise your tax position legitimately.

Furnished holiday lets: the special treatment

Furnished holiday lets (FHLs) receive special tax treatment under HMRC rules, and this can make a real difference to your bottom line. To qualify, your property must be furnished, available for commercial letting for at least 210 days per year, and actually let for at least 105 days during that period. Critically, the lets must be on a short-term basis—typically holiday accommodation rather than long-term residential lets.

The advantage? FHLs are treated as trading income rather than investment income. This means you can claim trading losses against other income in the same tax year, potentially reducing your overall tax bill. You’re also eligible for capital allowances on certain furnishings and equipment, and you may qualify for the Trading Allowance (up to £1,000 of income is tax-free if your trading income falls below this threshold).

However, if your property doesn’t meet these criteria consistently, HMRC will treat it as a standard residential let, which carries different—and generally less favourable—implications for losses and allowances.

Standard residential lettings: the baseline

Most buy-to-let properties fall into this category. Rental income from unfurnished or long-term furnished residential lets is taxable, and you can deduct allowable expenses: mortgage interest (though subject to restrictions since 2017), letting agent fees, maintenance, insurance, and council tax.

A crucial change came into effect from April 2020: landlords can no longer deduct mortgage interest as a business expense. Instead, a basic rate tax relief of 20% applies. This effectively means higher-rate taxpayers (40%) and additional-rate taxpayers (45%) receive less relief, creating a significant tax burden for some landlords. Self-assessment returns must reflect this restriction correctly.

Rental losses from residential lettings cannot be carried back; they can only be carried forward against future profits from the same property. This differs fundamentally from FHLs and makes loss-making properties particularly problematic in the short term.

Regulated and unregulated tenancies

Within residential lettings, you should distinguish between regulated tenancies (rare now, but still exist) and assured shorthold tenancies (ASTs). Most modern tenancies are ASTs, and the tax treatment is as described above. However, if you have older properties with regulated tenancies, different rules may apply—particularly regarding rent restrictions. This is relatively uncommon, but essential to flag correctly on self-assessment returns if relevant.

Company-owned lets vs. personal ownership

How you hold your properties—personally or through a limited company—also triggers different tax regimes. Personal ownership involves self-assessment and income tax; company ownership brings corporation tax (19% for the 2024/25 tax year) into play. Companies face different allowance rules and cannot benefit from the Trading Allowance. However, company structures can sometimes be more efficient for higher earners or when taking advantage of losses.

Mortgage interest relief also differs markedly between structures. Personal landlords lose higher-rate relief on mortgage interest, while companies can deduct all mortgage interest against profits before calculating corporation tax. This is why many established landlords restructure their portfolios.

Keeping good records

Regardless of which category your lets fall into, meticulous record-keeping is essential. HMRC expects evidence of all income and expenses, and penalties for inaccurate returns can be substantial. Good bookkeeping systems—whether digital or traditional—make self-assessment season considerably less painful and ensure you’re not overpaying or underpaying tax unintentionally.

Final thoughts

Property investment can be genuinely rewarding, but the tax landscape is complex. Misclassifying a let, failing to account for mortgage interest restrictions, or overlooking capital allowances can all cost you money. A few hours’ initial planning, especially if your portfolio is evolving, often yields significant returns.

For tailored advice, contact Severn Accounting — we’re here to help.