HMOs and Serviced Accommodation (FHLs): Complex Accounting

HMOs (Houses in Multiple Occupation) and serviced accommodation occupy the most accounting-intensive corner of UK property tax. The Furnished Holiday Lettings regime ended on 6 April 2025, removing capital allowances, loss offset against general income, pension relief on FHL profits, BADR at 10%, and spousal income-shifting flexibility. Serviced accommodation operators face the £90,000 VAT registration threshold trap and complex Airbnb/Booking.com platform fee accounting. HMO operators handle utility, council tax and management cost apportionment across multiple tenants.

For Harrow operators (around Wembley Stadium events, Heathrow-corridor Airbnb, or Pinner short-term lets), the post-2025 tax landscape is materially worse than under the old FHL rules. This guide covers the FHL fallout, the VAT trap, the platform fee accounting, HMO apportionment, and when an SPV structure pays for itself.

What FHL abolition removed

1. 1Capital Allowances on furniture, kitchen and integral features. Replaced by Replacement of Domestic Items Relief (like-for-like replacement only, not original purchase).
2. 2Sideways loss relief: FHL losses could previously offset other taxable income in the year. Post-abolition, losses can only carry forward against future property income.
3. 3Pension relief: FHL profits counted as relevant earnings for pension contribution relief. Post-abolition, FHL income is investment income and does not qualify.
4. 4Business Asset Disposal Relief at 10%: gone, replaced by ordinary residential CGT at 18%/24%.
5. 5Income-shifting flexibility: FHL profits could be apportioned freely between spouses regardless of legal title. Post-abolition, the standard 50/50 default and Form 17 rules apply.

The new loss-offset regime

• New losses can only carry forward against future property income (residential or commercial).
• Losses cannot offset employment, self-employment or investment income.
• Existing pre-April 2025 FHL losses brought forward retain their character and remain useable against future property income.

The £90,000 VAT registration trap

Serviced accommodation is a VAT-relevant supply. Where the lease is short-term and accompanied by hotel-like services (cleaning between guests, towels, linen change, on-call concierge), the income is standard-rated:

1. 1A serviced accommodation operator with two units in Wembley at £180/night for 280 nights each per year hits £100,800 of taxable turnover.
2. 2VAT registration becomes mandatory.
3. 3The operator must charge 20% VAT on bookings, eroding pricing competitiveness against unregistered competitors.
4. 4Input VAT on furnishing, refurbishment and operating costs becomes recoverable.
5. 5For most operators, the breakeven point where VAT registration becomes neutral or beneficial is at substantial scale (5+ units).

Airbnb, Booking.com and Vrbo fee accounting

Platform commission accounting matters because the gross-vs-net treatment shifts both rental profit and VAT registration testing:

• Airbnb: 3% host commission typical, some markets 14-16% (host-only mode). The host receives the net of fees but reports gross income with the fee as a deductible expense.
• Booking.com: 15% commission, deducted from payout. Same gross-up rule.
• Vrbo: pay-per-booking model (8% per booking) or annual subscription. Both gross-up.
• Cleaning fees collected from guests: gross income, with the actual cleaning cost as a separate deductible expense.

HMO utility and council tax apportionment

HMO operators bill utilities and council tax inclusive of rent (typical) or to tenants directly (rare). The accounting treatment:

• Utilities included in rent: the rent figure includes utility cost; the utility bill is a deductible expense.
• Council tax included in rent: same treatment as utilities.
• Pass-through utilities (tenant pays direct supplier): excluded from rent and excluded from expenses.
• Allocation between rooms: typically per-room equal shares for household-level costs (council tax, broadband); per-bedroom for room-specific costs (heating, cleaning).
• For HMO classified as a single dwelling for council tax, the landlord pays one bill and apportions across tenants.

SPV structure for serviced accommodation

Post-FHL abolition, the case for serviced accommodation in a limited company is stronger than for standard residential lettings:

• Section 24 still applies in personal name (mortgage interest restricted to 20% credit).
• A limited company deducts mortgage interest in full.
• Serviced accommodation activity meets the "active business" test for Section 162 Incorporation Relief more readily than passive AST landlording.
• Loss treatment: limited company losses carry forward against future trading profits with more flexibility than the post-abolition personal regime.

For operators above 3 units or £90k+ of turnover, the limited company structure increasingly pays for its compliance overhead. Below that scale, the friction usually exceeds the benefit.