The April 2025 property rental tax changes were tough on short lets. Here’s what changed, what you can still claim, and why Cambridge holiday lets remain compelling – when run professionally.
What Changed in April 2025
From 6 April 2025, the Furnished Holiday Lettings (FHL) regime was abolished. In practice, most short-let income now sits in your standard UK property business:
- Finance costs (individuals): Mortgage interest isn’t deducted from profit; relief is via a 20% tax credit (Section 24 rules).
- Companies: Interest is generally deductible under corporation tax rules, subject to the usual limits.
- Capital allowances: No new capital allowances for furnishings in dwellings; instead claim Replacement of Domestic Items Relief (like-for-like replacements).
- CGT & pensions: Access to certain trading CGT reliefs ended; FHL profits no longer count as “relevant earnings” for pension limits.
- Hotel/guesthouse exception: Only operations that truly amount to a hotel-style trade may be taxed as trading—get specialist advice if you think you qualify.
Important: This overview is general information of property rental tax and property rental expenses, not advice. Always consult a qualified property accountant.
Allowable vs Non-Allowable Property Rental Expenses (2025/26)
Allowable (wholly & exclusively for the rental business):
- Insurance; utilities you cover; council tax (if you pay it); platform fees; advertising/SEO/website costs; accountancy; cleaning & linen; consumables (toiletries, tea/coffee, welcome packs); routine repairs & maintenance; reasonable travel for management.
- Replacement of Domestic Items Relief: beds, sofas, white goods, curtains, cookware—when replacing like-for-like (not the initial purchase).
Not allowable / restricted:
- Individuals’ finance costs are relieved via the 20% credit, not deducted as an expense.
- Capital improvements (extensions, higher-spec kitchens).
- Personal use portions; fines/penalties; entertainment.
Keep detailed records of your property rental expenses and separate any private use – only the business portion is claimable.
Business Rates vs Council Tax (Cambridge)
Whether a short-term rental property is assessed for business rates or council tax depends on the pattern of letting/availability under current criteria. Some short lets that meet self-catering thresholds may be rated as business premises (and in some cases qualify for Small Business Rate Relief); others remain under council tax. Policies can vary locally, so check the latest guidance for Cambridge and your specific letting pattern.
VAT Reminder
If your rolling 12-month taxable turnover exceeds the current VAT registration threshold, you’ll need to register and charge VAT where applicable. Your accountant can confirm how this applies to your mix of bookings.
Making Tax Digital Timeline (Individuals Only)
MTD for Income Tax (ITSA) applies to individuals (landlords/sole traders) only. It does not apply to limited companies or to partnerships.
The thresholds are tested on each person’s total gross income from self-employment and/or property before deduction of expenses (and excluding VAT). If a property is jointly owned, use your share of the gross rents when working out your personal total.
- From 6 April 2026: applies to individuals with > £50,000 qualifying gross income.
- From 6 April 2027: extends to individuals with > £30,000 qualifying gross income.
Sensible bookkeeping now – clean categories, digital receipts, reconciled bank feeds – will make the transition smoother.
Short-Term Property Lets in 2025: Why Many Owners Still Choose Them
1) Revenue you can actively manage
Dynamic pricing, seasonal/event uplift (graduations, conferences, hospital rotations), and minimum-stay controls can outperform a fixed AST when demand is steady.
2) Flexibility for real life
Block owner stays, pivot calendars before sale/refi, and avoid long notice periods.
3) Diversified risk
Many bookings instead of one rent payment reduces single-tenant exposure. Platforms collect funds up-front and clear cancellation policies help protect cashflow.
4) Asset care
Frequent cleaning, regular inspections and fast maintenance cycles keep your home “sale-ready” and protect long-term value.
5) Still-useful deductions
While FHL perks have gone, day-to-day running costs are still deductible, and Replacement of Domestic Items Relief helps when you swap like-for-like furnishings.
6) Corporate & medium-stay demand
Project teams, relocating staff, visiting academics and clinicians often prefer serviced homes to hotels. Minimum stays of 5–14 nights can lift occupancy while reducing changeover costs.
Regional Demand Drivers — Cambridge
Tourism & leisure (year-round)
Historic colleges, museums, punting on the Cam, guided walking tours and major events keep leisure demand steady across seasons. Peaks centre on school holidays, spring/summer weekends and the pre-Christmas period.
University & academic cycles
Graduations, matriculation, open days, visiting researchers and international families create predictable spikes. Minimum stays of 3–7 nights convert well and reduce turn costs.
Healthcare & science hubs
The Biomedical Campus, Addenbrooke’s and nearby science/tech parks support strong weekday demand from clinicians, project teams and contractors. Consider Sun–Thu pricing to capture this corporate skew.
Local residents needing temporary space
A meaningful slice of bookings comes from Cambridge locals who need a home-from-home while they:
- Renovate or undertake insurance works (kitchens, extensions, flood/fire repairs)
- Bridge moving dates between sale and completion
- Host visiting family for weddings, graduations, new babies or school holidays
These stays often run 2–6 weeks. Guests value parking, laundry, reliable Wi-Fi and flexible check-in—and frequently prefer to book direct with a trusted local operator.
Medium-stay sweet spot
Setting 5–14 night minimums helps capture academics, clinicians and renovation stays—lifting occupancy and trimming housekeeping costs versus 1–2 night turnovers.
Weekpart & seasonality strategy
- Target weekday ADR with corporate/academic demand; protect weekend ADR with leisure pricing.
- Layer event-based premiums (graduations, conferences, festivals) and slightly longer minimums during peak periods to maintain quality and yield.
Property Rental Tax FAQs
Are short-term property lets still profitable after the April 2025 tax changes?
Yes – especially in high-demand markets like Cambridge. Profitability now depends more on disciplined pricing, cost control and professional operations due to recent property rental tax changes.
What deductions can I still claim?
Cleaning, linen, utilities you cover, platform fees, insurance, marketing/SEO, accountancy, routine repairs, travel for management—and Replacement of Domestic Items Relief on like-for-like furniture/white goods.
Do I need to charge VAT?
Only if your taxable turnover exceeds the current UK VAT threshold. Get advice for your situation.
Should I operate through a company?
It depends on your finance costs, income level and goals. A property-savvy accountant can model both routes.
How does House of Luchini improve returns for short-term rental properties in Cambridge?
House of Luchini improves returns for short-term rental properties in Cambridge by combining calibrated dynamic pricing with the expertise of our in-house pricing strategist, ensuring consistently higher-than-market revenues. We also maximise exposure through multi-channel distribution (including our Marriott Bonvoy partnership), maintain guest satisfaction with meticulous housekeeping and preventative maintenance, and provide full transparency through clear owner reporting.
Talk To Us
Want a Cambridge-specific revenue forecast and operations plan for your rental property? Email stay@houseofluchini.host and we’ll map demand patterns, pricing bands and an ops plan that suits your goals. Contact us today!
This is general information about property rental tax and rental property expenses, not tax advice. Please speak to a qualified property accountant about your specific circumstances.