Most residential letting is VAT-exempt — but commercial property and short-term/holiday lets follow completely different rules.
Last updated: June 2026
If you let residential property on a standard long-term tenancy, that rental income is exempt from VAT — you never charge VAT to tenants, regardless of your portfolio size. The trade-off is that you generally cannot reclaim input VAT on costs related to that exempt letting activity.
Renting out commercial property is also exempt by default, but commercial landlords can formally opt to tax a specific property, at which point rental income becomes standard-rated and the landlord can reclaim input VAT on related costs like renovation and maintenance. This is a significant decision that carries specific conditions and, once made, is generally binding for an extended period.
Short-term furnished lettings (holiday homes, serviced accommodation) are generally treated as a taxable supply of accommodation, similar to a hotel, rather than exempt residential letting. This means income from qualifying short-term lets counts toward the VAT registration threshold like any other taxable business activity.
No. Long-term residential rental income is VAT-exempt and doesn’t count toward the registration threshold, regardless of portfolio size.
Yes. Short-term/holiday letting income is generally treated as taxable and counts toward the threshold, even though your long-term rental income does not.
Generally no, since residential letting is exempt and exempt supplies don’t carry the right to reclaim related input VAT.
A formal election to charge VAT on a specific commercial property going forward — a significant decision that carries specific conditions and is generally binding for a period, worth professional advice.
No, it’s the same threshold as any business — most residential rental income simply doesn’t count toward it because it’s exempt.
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