Tax Myths Busted: What UK Landlords Get Wrong About Serviced Apartments in 2025

The short-term rental landscape has transformed dramatically in 2025, yet many UK landlords considering the switch from traditional buy-to-let are still operating under dangerous tax misconceptions. As specialists in helping landlords transition to Airbnb and serviced apartment management, we see these costly myths repeatedly preventing property owners from maximising their returns.

If you're weighing up the move from traditional rentals to short-term lets, understanding the real tax picture could save you thousands, or cost you dearly if you get it wrong.

The VAT Minefield Most Landlords Navigate Blindly

The biggest myth we encounter? That the famous "90-day rule" is the be-all and end-all of VAT obligations for short-term rentals. Landlords constantly ask us: "If my guests stay less than 90 days, I automatically need to register for VAT, right?"

Wrong. And this oversimplification has landed several of our clients in hot water before they found us.

HMRC's VAT assessment for serviced apartments goes far beyond duration. Yes, serviced apartments sit in that grey zone between hotel rooms (which are VAT-able) and furnished flats (which aren't). But the key factor isn't just how long guests stay: it's what services you're providing.

The more hotel-like services you offer: daily housekeeping, concierge services, breakfast provision: the more likely HMRC will treat your operation as VAT-able, regardless of stay length. Recent tribunal cases have only muddied these waters further.

When we onboard new landlords, we conduct a thorough service assessment to determine their likely VAT position. Some of our most successful operators deliberately structure their offerings to stay below the VAT threshold while maximising guest appeal.

Section 24: The Relief Most Landlords Don't Know Exists

Here's where traditional buy-to-let landlords get the shock of their lives when we show them the numbers. Most assume that the punitive Section 24 mortgage interest restrictions apply across all rental properties. They've watched their profits evaporate since the restrictions began, limiting mortgage interest relief to a basic 20% tax credit.

But here's the game-changer: Section 24 doesn't apply to properly structured short-term rental operations.

Unlike your traditional buy-to-let where mortgage interest is severely restricted, serviced apartment operators can still claim their mortgage interest as fully tax-deductible. We've helped landlords transition properties where this single change has added £200-£300 monthly profit per property.

One client recently told us: "I was making £400 monthly profit on my buy-to-let after Section 24. Now I'm clearing £1,200 on the same property as a serviced apartment." The mortgage interest deductibility played a huge role in that transformation.

Commercial vs Residential: The Classification Game-Changer

Traditional landlords often assume all rental properties get lumped into the same tax bucket. Another expensive misconception.

When we transition landlords to short-term rental management, their properties typically qualify as commercial operations for tax purposes. This isn't just semantic: it translates to significantly lower tax rates compared to residential property taxation.

The commercial classification affects everything from stamp duty calculations on future purchases to ongoing tax obligations. We've seen landlords save thousands annually just through this reclassification, before considering the operational improvements we implement.

The FHL Confusion Costing Landlords Dearly

April 2025 brought the death knell for Furnished Holiday Let (FHL) relief, and the confusion has been spectacular. Landlords keep asking us whether this killed all tax advantages for short-term rentals.

The reality? Former FHL properties now get treated like regular residential rentals: they've lost their business-like tax treatment and face the same mortgage interest restrictions as standard buy-to-lets. But properly structured serviced apartment operations maintain their advantages entirely separate from the defunct FHL regime.

We've been busy this year helping former FHL landlords restructure their operations to maintain tax efficiency. The landlords who adapted their model retained their profitability; those who didn't saw their margins evaporate overnight.

Digital Compliance: The New Reality

HMRC's Making Tax Digital initiative caught many landlords off-guard in 2025. We still encounter landlords trying to manage their short-term rental taxes with annual submissions and paper receipts.

This approach now triggers automatic penalties. The new system demands five tax submissions annually with accurate digital record-keeping throughout the year. The penalty structure is merciless: unprepared landlords face thousands in fines.

When we take on new short-term rental management, implementing robust digital bookkeeping systems isn't optional: it's essential for compliance. Our management platform integrates directly with approved accounting software, ensuring our landlords never fall foul of these requirements.

Capital Allowances: The Advantage Traditional Landlords Miss

Here's a tax benefit that traditional buy-to-let landlords can only dream of: capital allowances on furniture and equipment for commercial short-term rental operations.

While buy-to-let landlords face restrictions on claiming furniture costs, our serviced apartment operators can claim substantial capital allowances on everything from beds and sofas to kitchen equipment and technology. This can translate to significant first-year tax savings when setting up operations.

The Income Splitting Opportunity

Advanced tax planning for short-term rentals opens doors that traditional buy-to-let simply can't access. When structured correctly, serviced apartment operations can enable income splitting between family members, potentially moving income into lower tax brackets.

This isn't available for standard residential rentals but becomes possible with commercial short-term rental arrangements. We work with tax specialists to help landlords optimise their structure from day one.

Why Professional Management Changes Everything

These tax advantages aren't automatic: they require proper structuring, ongoing compliance, and professional management to maintain. DIY short-term rental often fails to capture these benefits simply because landlords don't understand the requirements or lack systems to maintain compliance.

When we manage landlords' transitions to short-term rentals, tax optimisation forms part of our comprehensive service. We ensure properties are structured to maximise available reliefs while maintaining full compliance with evolving regulations.

The difference between a well-managed serviced apartment operation and a traditional buy-to-let isn't just higher gross income: it's the combination of increased revenue, better tax treatment, and professional systems that deliver sustainable long-term profitability.

Making the Switch: What Landlords Need to Know

If you're considering transitioning from traditional buy-to-let to short-term rentals, understanding these tax implications is crucial before making any moves. The potential benefits are substantial, but they require proper implementation to realise.

The landlords achieving the best results in 2025 aren't just those with the best properties: they're those who've structured their operations correctly and partnered with experienced management companies who understand both the opportunities and the pitfalls.

Don't let tax myths cost you thousands. The short-term rental market offers genuine advantages for UK landlords, but only when approached with proper knowledge and professional support.