Rent to Rent in the UK: What It Is and What’s Changed in 2026

Rent to rent has become a well-known business model for UK property professionals and hosts looking to generate income from holiday lets and short-term accommodations. 

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In its simplest form, rent to rent is when a company or individual leases a property from a landlord on a long-term basis, and then lets that same property out to guests on a short-term or holiday basis. The rent to renter takes on the commercial risk, pays the landlord a fixed or guaranteed rent, and keeps any difference between that and what they earn from guests. This allows landlords to receive a predictable income while leaving management and guest servicing to the intermediary. 

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In the holiday-let and serviced accommodation space, this model can be attractive because it sidesteps the need for property owners to manage day-to-day bookings, cleaning, maintenance and guest support. However, hosts and operators have to navigate a complex landscape of regulation, from planning and licensing to tax and VAT. As the short-term rental market matures in the UK, this complexity is only increasing.

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TOMS, VAT, and the Landmark Sonder Case

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One of the biggest developments affecting rent to rent and serviced accommodation operators in the UK in the last couple of years has been the legal challenge over the application of the Tour Operators’ Margin Scheme (TOMS) and VAT.

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Traditionally, holiday-let operators that qualified under TOMS could account for VAT only on their margin, rather than on the full charge paid by guests. This has historically been attractive because it reduced the amount of VAT due to HMRC and helped some operators price competitively. However, the Upper Tribunal recently ruled against this broad application of TOMS in a case involving Sonder Europe Ltd.

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In the Sonder v HMRC case, Sonder had leased apartments on a long-term basis, furnished them, and then let them to guests for short stays. They argued these were “designated travel services” under TOMS, allowing VAT on margin only. HMRC disputed this, saying the leases (a property interest) were not purchased for the direct benefit of travellers in the way required for TOMS. The Upper Tribunal agreed with HMRC and ruled that TOMS did not apply, meaning standard VAT is due on the full accommodation charge.

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This decision was initially scheduled to be heard by the Court of Appeal, but in late January 2026 the hearing was postponed after a stay was granted. That stay gives operators, legal teams and sector groups extra time to mobilise funding and strategy before the appeal proceeds. If the original ruling had stood without delay, businesses using TOMS on a rent to rent model could have faced significant VAT recalculation and backdated liabilities. This delay is being welcomed by many as a crucial window to develop a workable solution.

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What this means in practice is that many short-term rental businesses, especially those structured around rent to rent and serviced accommodation, need to revisit their VAT treatment and speak to tax professionals to ensure compliance and manage cash flow risk. If the case eventually upholds that TOMS does not apply, VAT will be due on the total guest price, not just the margin. This could materially affect pricing, profitability and competitiveness.

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Why This Matters for UK Holiday Lets

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Many holiday let hosts, Airbnb hosts, and short-term rental operators don’t realise how VAT can shape their net returns. When TOMS applied, the VAT impact was often lower, making short-term rentals more financially attractive. With the legal landscape shifting, operators might need to:

• Reassess whether TOMS is applicable to their business model;
• Update pricing and contracts to reflect total VAT liability where required;
• Plan cash flow for any potential backdated tax exposure once the appeal is heard.

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This is especially critical for hosts operating at scale or as part of a portfolio model.

What Should Hosts Do Now?

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If you’re a host or operator in the UK holiday-let sector, here are practical steps to take:

1. Review your VAT position: Speak to a qualified VAT advisor about how the TOMS decision affects your business and whether an appeal outcome could change your liabilities.
2. Ensure compliance with local rules: Planning permission, licensing and health & safety requirements vary across councils and nations within the UK.
3. Update pricing and contracts: If VAT treatment changes, your pricing needs to reflect the correct tax treatment without eroding your margins.
4. Stay up to date: Regulatory and legal developments are ongoing. Subscribing to specialist property tax updates or working with expert advisers can help you react swiftly.

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Stay Informed

In short, the rent to rent model continues to be a popular way to participate in the UK’s short-term rental market, but its viability depends on staying ahead of legal and tax changes. The recent stay on the Court of Appeal hearing in the Sonder TOMS case gives operators breathing space, but planning and compliance remain essential for long-term success.

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