Airbnb and holiday lets in Britain: what American hosts owe on both sides

Figures relate to tax year 2025-26 (UK) / 2025 (US)

Letting a cottage in Cornwall or a spare room in London used to carry real tax advantages. The furnished holiday lettings rules gave short lets their own favourable treatment in Britain. From April 2025 that regime ended, and the advice that came with it is now out of date.

America never recognised the British regime anyway, so that side of the picture has not moved. So this guide covers how each country now taxes holiday lets, including the rule that lets some hosts ignore the income entirely.

Key takeaways

• The special regime for holiday lets ended on 6 April 2025.
• Mortgage interest now gets only basic-rate relief, as with any other let.
• Rent-a-room relief still exempts up to £7,500 of income from letting in your own home.
• America ignores rental income entirely if you let your home for fewer than 15 days.
• US depreciation on foreign property runs over 30 years and is recaptured on sale.

What changed for holiday lets in April 2025?

The special regime disappeared. Short lets that met the old occupancy conditions once enjoyed full mortgage interest relief, capital allowances on furniture, and access to business capital gains reliefs. Those advantages ended together on 6 April 2025.

Holiday lets now follow the same rules as ordinary property letting. Mortgage interest gives a basic-rate tax reducer rather than a full deduction, and furniture costs come through replacement relief instead of capital allowances.

The income also stops counting as relevant earnings for pension contributions. Anyone who built a pension plan around that treatment needs to revisit it.

Britain removed the advantage. America never granted one. What remains is a rental, taxed twice and credited once.

How does America tax the same income?

As rental income, reported on Schedule E of your Form 1040. You deduct the running costs, including mortgage interest in full, management fees, insurance and repairs. Per the IRS guidance on Schedule E (opens in a new tab), the calculation follows American rules rather than the British ones.

Depreciation is compulsory rather than optional. You write foreign residential property off over 30 years, and the IRS treats the deduction as taken whether or not you claimed it. That matters on sale, because the IRS recaptures the amount either way.

Providing hotel-like services changes the picture. Where you supply daily cleaning, meals or similar, the income can move to Schedule C and attract self-employment tax as well.

What is the 14-day rule?

It is the most generous rule most hosts have never heard of. According to the IRS guidance on renting a home (opens in a new tab), if you rent a dwelling you also use as a residence for fewer than 15 days in the year, you report none of the income.

No income, no deductions, and nothing on the return at all. A fortnight of letting during a festival or a sporting event can therefore be entirely free of US tax, whatever it earned.

Britain offers no equivalent, so the income still enters your Self Assessment calculation. Rent-a-room relief may cover it instead, which is where the two systems line up nicely for small hosts. Track the nights. The count is what proves it.

How does rent-a-room relief work?

It exempts up to £7,500 a year from letting furnished accommodation in your own home. Per the GOV.UK guidance on renting a room (opens in a new tab), the relief is automatic below that threshold, and you can choose it above the threshold instead of claiming expenses.

The relief halves to £3,750 where two people share the income. It also applies only to your main home, so a separate cottage or flat falls outside it entirely.

America gives no matching exemption. Income covered by rent-a-room relief still belongs on your US return unless the 14-day rule applies. Britain charged no tax on it, so no credit exists.

How do you report it properly?

Keep one set of records and produce two calculations from it. Neither country accepts the other set of figures. Holiday lets need this discipline more than long tenancies, because bookings arrive in small pieces all year. Work through the year in this order:

1. Record every booking with its dates, gross amount and platform fees.
2. Track your own personal use of the property in days.
3. Separate repairs from improvements, which are treated differently.
4. Prepare the UK calculation under current property rules.
5. Prepare the US calculation on Schedule E, including 30-year depreciation.
6. Convert each figure to dollars using the payment dates.
7. Claim credit for the UK tax against the US tax on the same profit.

The two profit figures will differ, sometimes widely. Expect that gap. The credit calculation needs both sets of numbers rather than one converted total.

Which costs can you deduct?

Both countries allow the running costs of holiday lets. Platform fees, cleaning, laundry, insurance, utilities and repairs all count. Keep every invoice. Two tax authorities may ask, and they may ask years apart.

The split between repairs and improvements matters. A repair reduces this year profit. An improvement adds to the cost of the property and waits until you sell.

Britain now gives replacement of domestic items relief for furniture. America adds furniture to the depreciation schedule instead, over shorter lives than the building itself. Keep that schedule with your records.

Do the booking platforms report your income?

Yes, increasingly. Platforms now report host earnings to HMRC under the digital platform reporting rules. The figures reach HMRC directly, so your return needs to match what the platform filed.

American hosts may also receive a Form 1099-K from a US platform. Keep both sets of statements. The gross figure usually includes fees that you later deduct.

Matching matters more than ever. A return that disagrees with a platform report invites a letter, and letters are slow to answer from abroad. Check your figures before you file.

A worked example

Take an illustrative example. An American in Bath lets a converted annexe as one of two holiday lets, earning £18,000 in 2025 with £7,000 of costs and £4,000 of mortgage interest.

In Britain, the interest no longer reduces her profit directly. Her taxable profit is £11,000, with a basic-rate reduction of £800 against the tax. In America, the interest is a straight deduction, so her profit is £7,000 before depreciation.

Depreciation reduces the American figure further, often to little or nothing. She claims credit for the UK tax and usually owes nothing extra. The depreciation then waits until she sells.

She keeps a simple booking log. It takes minutes a week. Keep the booking confirmations too.

Does personal use limit your deductions?

In America, yes. Where you use the property yourself for more than 14 days, or more than 10% of the days it was let, the vacation home rules restrict deductions to the level of the rental income. You cannot claim a loss.

Britain applies its own apportionment instead, disallowing costs relating to private use. So a family cottage used for holidays needs careful day counting on both sides, ideally recorded as you go rather than reconstructed later.

What about VAT and business rates?

Holiday lets are a standard-rated supply for VAT, unlike residential letting. Busy hosts whose turnover passes the registration threshold must register and charge VAT, which changes the economics of a successful property quickly.

Business rates can also replace council tax where a property is available and actually let for enough days in the year. The tests differ between England, Wales and Scotland, so check the rules for the property's location.

Mistakes and traps with holiday lets

Most holiday lets problems come from following advice written before April 2025, or from treating one country's figures as the answer for both:

• Claiming full mortgage interest relief in Britain, which ended with the old regime.
• Assuming the income still counts as earnings for pension contributions.
• Skipping US depreciation, which is recaptured on sale whether claimed or not.
• Missing the 14-day rule when letting your own home briefly.
• Using the UK profit figure on the US return, or the reverse.
• Ignoring platform fees, which are deductible in both systems.

Long-term letting follows different rules again. Our guide to UK rental income and US tax covers the position for ordinary residential tenancies. Our guide to Form 1116 and the foreign tax credit explains how the credit applies to rental profit. Ask before you file, not after.

What if you let through a company?

Some owners hold holiday lets through a limited company. Corporation tax then applies to the profit. Mortgage interest becomes fully deductible again, which is the main attraction for higher-rate owners.

For an American owner that choice brings Form 5471 every year, plus possible US tax on profits left inside the company. It usually costs more than it saves, so model it before incorporating.

Our guide to US property for UK residents covers the mirror image, where a British owner holds American property.

What happens when you sell?

Both countries tax the gain, and the old British reliefs for holiday lets have gone. Business asset disposal relief no longer applies to a property that was a holiday let, so the ordinary capital gains rules govern the sale.

America adds depreciation recapture on top, taxing every year of deductions you could have taken. Keep a running schedule of it, because reconstructing years of depreciation at the point of sale is slow and expensive. Start the schedule now. It is far easier than a rebuild later.

How US UK Tax Accountants helps

We prepare both calculations from one set of records, keep the depreciation schedule current, and claim the credits in the right order. Our property and capital gains service covers letting and sale on both sides.

In our practice the depreciation schedule is where most value is lost or saved. We agree a fixed fee in writing before any work begins.

Review your letting position

If you let a British property short-term, a review confirms what the April 2025 changes mean for you. Tell us what you let and how often. You can book a consultation and hear back within one working day.

Last reviewed 16 September 2026 by the US UK Tax Accountants Tax Team. This article is general information, not personal tax advice — speak to a qualified US/UK tax adviser about your own position.