Last updated: 14 October 2026
Should a dairy farm and holiday letting be treated as one business?
Usually not. Farming is a trade, but income from holiday lets is property income, so they’re normally two separate sources for tax, each with its own profit or loss. Since the furnished holiday lettings regime was abolished from 6 April 2025, holiday lets are taxed like other residential lettings, without the old trading-style reliefs. Only where you provide substantial services, such as a farm-stay guesthouse with meals and activities, might the letting be part of a trade. Keeping them separate affects losses, capital allowances, CGT reliefs and inheritance tax.
Why the split matters
| Issue | Dairy farm (trade) | Holiday let (property income from April 2025) |
| Losses | Can be set against other income (subject to hobby farming rules) | Carried forward against future property profits only |
| Capital allowances | AIA on machinery and plant | Not for new furniture in dwellings; replacement relief only |
| Mortgage interest | Fully deductible | 20% tax credit |
| Business Asset Disposal Relief | Available on a sale of the business | Not available |
| Rollover relief | Available for farm assets | Not available |
| Agricultural Property Relief for IHT | Farmhouse and land may qualify | Not available |
Mixed-use buildings
If a converted barn is used for holiday lets, it’s no longer used for farming. That can affect APR and rollover relief on the barn, and business rates may apply if it’s available to let for 140 days or more and actually let for 70 days in England.
Example
The Hughes family run a dairy farm making a £60,000 profit and let 2 converted cottages making £18,000. They report the farm on the self-employment pages and the cottages on the property pages. In 2026/27, the farm makes a £20,000 loss due to low milk prices. The loss can be set against their other income, including the cottage profits, under sideways loss relief, subject to the farming loss restriction after 5 consecutive loss years.
Inheritance tax changes
From 6 April 2026, Agricultural and Business Property Relief at 100% is limited to the first £2.5 million of combined qualifying assets per person (with unused allowance transferable between spouses), with 50% relief above that. Holiday cottages don’t qualify for either relief, so including them in farm planning doesn’t help.
When a combined trade might be argued
- Farm-stay accommodation with daily services, meals and farm activities
- Glamping with extensive services
- Integrated operations where guests’ stays depend on farm activities
These are fact-specific and HMRC often challenges them.
Common mistakes
- Combining holiday let income with farm profits
- Claiming AIA on holiday cottage furniture after April 2025
- Assuming APR covers converted holiday lets
- Ignoring the farm loss 5-year rule
Separate records
Keep separate bank records and accounts for the farm and the lets, and apportion shared costs such as electricity or insurance on a fair basis. Clear records make it easier to show which costs belong to which business if HMRC asks.
Frequently asked questions
Can I average farm profits?
Yes, farmers can average profits over 2 or 5 years.
Is VAT due on holiday lets?
Yes, if VAT-registered.
Do holiday lets need MTD?
They count towards the MTD qualifying income threshold.
Is camping income property income?
Usually, unless substantial services are provided.
Related: the FHL budget changes, rolling over a property gain and business sale tax.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with farm and diversification tax. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
