You own a flat that could earn its keep two ways: as a serviced accommodation short-let on Airbnb and Booking.com, or as a standard buy-to-let on a single tenancy. The nightly rate looks tempting. But which one actually leaves more in your pocket once the cleaner, the agent and HMRC have taken their cut?
The honest answer used to lean towards holiday lets, partly because the tax rules favoured them. That prop has now been kicked away, so it is worth running the maths again on the same property.
The tax playing field just changed
The furnished holiday lettings (FHL) regime was abolished from 6 April 2025 for income tax and capital gains tax, and 1 April 2025 for companies (gov.uk policy paper). That matters, because an FHL used to get treatment a normal rental did not:
- full deduction of mortgage interest against profits
- capital allowances on furniture and equipment
- profits that counted as relevant earnings for pension contributions
- access to some capital gains reliefs on sale
All of that has gone. A serviced accommodation let is now taxed as an ordinary property business, exactly like a buy-to-let. So the Section 24 restriction that has squeezed landlords since 2020 now bites short-lets too: mortgage interest is no longer a deductible cost for individuals, and you instead get a 20% basic-rate tax credit (gov.uk guidance). Companies still deduct interest in full, but most amateur SA operators hold personally.
The upshot: the comparison now comes down to raw cashflow after real running costs, not a tax loophole.
Same flat, two strategies
Assume a 2-bed flat worth around £220,000, held personally by a higher-rate (40%) taxpayer, with a £120,000 interest-only mortgage at 5.5% (a rate you should check against current deals, which move often). Here is how a fairly typical year could look under each model.
The buy-to-let numbers
| Item | Annual |
|---|---|
| Gross rent (£1,150/mo) | £13,800 |
| Voids and arrears (~4%) | -£550 |
| Letting agent (10% + VAT) | -£1,650 |
| Repairs, safety certs, maintenance | -£900 |
| Landlord insurance | -£250 |
| Operating profit before mortgage | £10,450 |
| Mortgage interest | -£6,600 |
| Pre-tax cash profit | £3,850 |
Steady, low-touch, predictable. Plug your own rent, agent fee and mortgage into the buy-to-let cashflow calculator to see where your figures land before tax.
The serviced accommodation numbers
Now the same flat, fully managed as a short-let at £110 a night with 65% occupancy (about 237 nights sold).
| Item | Annual |
|---|---|
| Gross bookings (237 nights @ £110) | £26,000 |
| SA management (15% + VAT) | -£4,700 |
| Cleaning and laundry (net of guest fees) | -£2,400 |
| Utilities, council tax, wifi | -£3,600 |
| Consumables, replacements, wear | -£1,500 |
| Specialist short-let insurance | -£450 |
| Booking and platform fees | -£900 |
| Operating profit before mortgage | £12,450 |
| Mortgage interest | -£6,600 |
| Pre-tax cash profit | £5,850 |
Nearly double the gross income turns into a smaller advantage once you carry every cost the tenant normally pays: utilities, council tax, the cleaner between every stay, and the constant replacement of things guests break or take.
After tax, who actually wins
Because both are now taxed the same way, the tax step is where the gross-income gap narrows further.
| Buy-to-let | Serviced accommodation | |
|---|---|---|
| Taxable profit (before interest) | £10,450 | £12,450 |
| Tax at 40% | £4,180 | £4,980 |
| Less 20% interest credit (on £6,600) | -£1,320 | -£1,320 |
| Income tax due | £2,860 | £3,660 |
| Post-tax cash profit | £990 | £2,190 |
So in this worked example the short-let nets about £2,190 against the buy-to-let's £990. Roughly £1,200 a year more. Real, but a long way from the "double the income" the headline nightly rate implied. And that extra £1,200 buys you a small business to run, not a passive asset.
These are illustrative figures to show the shape of the maths, not a forecast for any specific flat. Swap in your own rent, occupancy and rates.
Levers that still favour serviced accommodation
A few things can widen the SA gap:
- Business rates instead of council tax. In England, a property available to let for 140+ days and actually let for 70+ days a year can be assessed for business rates rather than council tax, and many then qualify for Small Business Rate Relief, sometimes reducing that line to zero. Check current VOA thresholds, as they have changed before.
- Higher ceiling in the right location. Near a hospital, event venue or tourist draw, occupancy and nightly rate can run well above the assumptions here.
- Flexibility. You can block dates for your own use or sell with vacant possession quickly.
The costs that don't show up in a spreadsheet
Before you switch, weigh the things the table cannot capture:
- Effort and volatility. Twelve tenancy changes a year is nothing like one. Income swings with seasons, weather and reviews.
- Regulation is tightening on short-lets. The Renters' Rights Act 2025 (Royal Assent 27 October 2025, main reforms commenced 1 May 2026) reshaped the long-let market by abolishing Section 21 and making tenancies periodic, and it does not govern genuine holiday lets. But short-lets face their own growing rules, including local planning restrictions in some areas and a planned national registration scheme in England. Check your council before you list.
- Mortgage availability. A holiday-let mortgage comes from a smaller pool of lenders, often at higher rates and fees than a mainstream buy-to-let. Your existing consent-to-let may not permit short-letting at all.
- Leasehold and insurance. Many flat leases and standard policies forbid short-term letting outright.
So which nets more?
On the same flat, in the same year, serviced accommodation edged ahead here, but by less than the gross figures suggest and only after taking on real work and real risk. With the FHL tax advantages gone since April 2025, the case for SA now rests on operational skill and location, not a friendlier tax code. Buy-to-let wins on simplicity and predictability; serviced accommodation can win on cash, if you can keep occupancy high and costs disciplined.
Run both models on your own numbers before you commit, and re-run them if base rates or your mortgage move.
This is general information, not tax or financial advice. Speak to a qualified accountant about your own circumstances.
