Most residential rent is VAT-exempt — but commercial property, holiday lets, and serviced accommodation follow completely different rules. Here's what actually applies to you.
Last updated: June 2026
| Property type | VAT treatment |
|---|---|
| Long-term residential letting | Exempt from VAT |
| Commercial property (default) | Exempt, unless landlord "opts to tax" |
| Commercial property (opted to tax) | Standard-rated at 20% |
| Furnished holiday lets / serviced accommodation | Standard-rated at 20%, treated as a business supply |
| Hotel and similar short-stay accommodation | Standard-rated at 20% |
If you let residential property on a standard assured shorthold tenancy or similar long-term letting, that rental income is VAT-exempt — you never charge VAT to tenants, and this remains true no matter how large your property portfolio or how much rent you collect. This exemption is specific and doesn't have a turnover threshold; it's not that small landlords are exempt and large ones aren't, exempt is exempt regardless of scale.
The trade-off: because residential letting is exempt rather than "outside the scope," you generally cannot reclaim VAT on costs related to that letting activity (agent fees, some repairs, professional services) — VAT paid on those costs is simply a cost to you, not something recoverable, since exempt supplies don't carry input VAT recovery rights in the way taxable supplies do.
Renting out commercial property (offices, retail units, warehouses) is also exempt from VAT by default — but unlike residential letting, commercial landlords have the option to formally "opt to tax" a specific property. Once opted, rental income from that property becomes standard-rated at 20%, and crucially, the landlord can then reclaim VAT on costs relating to that property (renovation, maintenance, agent fees, and so on).
Landlords typically opt to tax when they've incurred, or expect to incur, significant VAT-bearing costs on a commercial property (a major refurbishment, for example) and want to recover that VAT — the cost of doing so is that tenants who can't reclaim VAT themselves (some smaller businesses, VAT-exempt sectors like healthcare or finance) will find the rent 20% more expensive.
Short-term furnished holiday lettings (think Airbnb-style stays, holiday cottages, serviced apartments) are treated very differently from long-term residential letting — HMRC generally regards this as a standard-rated business supply of accommodation, similar to a hotel, rather than an exempt residential letting. This means income from furnished holiday lets counts toward your VAT registration threshold just like any other taxable business turnover, and once you're registered you must charge 20% VAT on the accommodation charge.
The distinction between "long-term residential letting" (exempt) and "holiday letting" (taxable) generally comes down to the nature and duration of the occupation — short stays with holiday-style terms point toward taxable treatment, while assured shorthold tenancies of typical residential duration point toward exempt treatment. Portfolio landlords who mix long-term lets with a holiday cottage or two need to track these separately.
If you have both exempt residential lettings and taxable supplies (a holiday let, an opted-to-tax commercial unit, or another taxable business activity), you may need to become partially exempt for VAT purposes — a specific set of rules governing how much input VAT you can reclaim when your costs relate to a mix of exempt and taxable income. This is genuinely one of the more complex areas of UK VAT and worth dedicated accountant input if it applies to you, since getting the apportionment wrong is a common area HMRC scrutinises.
No. Long-term residential rental income is VAT-exempt and doesn't count toward the £90,000 registration threshold, no matter how many properties you own or how much rent you collect.
Yes. Furnished holiday letting income is treated as taxable business turnover and counts toward the £90,000 threshold, even though your other, long-term residential rental income does not.
Generally no, since residential letting is an exempt activity and exempt supplies don't carry the right to reclaim related input VAT. This is a common point of frustration for landlords doing major refurbishments.
It's a formal notification to HMRC electing to charge VAT on a specific commercial property going forward. Once made, the option generally applies for at least 20 years and is difficult to revoke, so it's a decision that warrants professional advice rather than doing it casually.
No, it's the same £90,000 threshold as any UK business — the key difference for most landlords is simply that a large share of their income (long-term residential rent) is exempt and doesn't count toward it in the first place, not that landlords get a special higher or lower threshold.
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