How Tax on Holiday Lettings Works (and What’s Changing in 2025)

If you own a holiday let, you know it’s about more than crisp sheets and happy guests—it’s about getting the tax right too. Tax on holiday lettings has its own rules, from what counts as property income to what you can claim as expenses, plus a few quirks you won’t find with standard buy-to-lets.

With changes arriving in 2025, it pays to know exactly how your holiday accommodation is taxed, what income you need to declare, and how to keep HMRC happy—so you can get back to stocking up on those tiny shampoo bottles (and maybe even enjoy a little downtime yourself).

What counts as a holiday let—and why it matters

Not all rentals with a sea view and a bowl of miniature toiletries count as a holiday let in the eyes of HMRC. To get the right tax treatment, your property needs to meet the official rules for a furnished holiday let (FHL).

What qualifies as a holiday let property?

Before you can enjoy any special tax treatment, your property needs to pass the FHL test. Here’s what HMRC looks for:

• The property must be furnished—think full comfort, not just a camping chair and a hope.
• It must be available for short-term letting to the public for at least 210 days a year.
• It needs to be actually let as holiday accommodation for at least 105 days each year (long-term lets over 31 days don’t count).
• The property has to be in the UK or European Economic Area (EEA).

Why classification matters

Getting FHL status isn’t just a label—it used to make a serious difference to your holiday lettings tax situation, though this is now changing.

• Income tax: FHLs allowed for more generous deductions (including full mortgage interest relief), and was treated as a “business” for certain purposes.
• Tax advantages: You could access capital allowances, better pension contribution options, and even favourable capital gains tax reliefs if you sold.
• Historic treatment: FHL business owners have traditionally enjoyed perks like business rates and potentially lower CGT rates.
• Limited company vs. individual: How you own the property—individually or through a limited company—affected the tax rules, reporting requirements, and how profits were taxed and withdrawn.

In short: FHL property status meant lower taxes, more flexibility, and a better return on your holiday let business. From 2025, this has changed (more on this below.)

Income from holiday lettings: What’s taxable?

Running a holiday let means money coming in and plenty going out—but only certain amounts count as taxable income (and only certain costs can be deducted). Understanding what’s property income (and what’s not) is the first step to getting your tax bill right.

What counts as let income, rental income and property income?

For tax purposes, almost all payments you receive from guests are classed as rental income or property income. This includes:

• Nightly, weekly, or short-term rental payments from holidaymakers.
• Fees for extra services (like cleaning, linen changes, or welcome hampers—yes, even the mini shampoo bottles).
• Refundable deposits you actually keep (for damages or late check-outs).

This total is your let income—the starting figure for calculating your taxable profits from the holiday letting.

Allowable deductions for FHL profits

Before you work out your profit, HMRC lets you knock off a long list of allowable expenses. These can include:

• Cleaning and laundry costs
• Property management and letting agent fees
• Finance costs (like mortgage interest)
• Insurance (buildings, contents, public liability)
• Utilities, council tax, and broadband
• Repairs and maintenance (but not big improvements)
• Replacement of domestic items (like furniture or appliances)
• Advertising and marketing costs
• Accountancy or professional fees linked to the property

Only the business portion counts—so if you use the property personally, you’ll need to apportion costs.

How taxation works for holiday let income

How you’re taxed on your holiday letting profits depends on whether you own the property personally or through a limited company. Each route comes with its own set of rules, rates, and planning opportunities—so it’s worth understanding the difference before the bookings start rolling in.

• Individuals: Profits are added to your other income and taxed at your income tax rate (basic, higher, or additional rate bands).
• Limited company landlords: If you own your holiday let through a company, profits are subject to corporation tax—and extracting profits (as dividends or salary) has its own tax implications.
• Property business status: HMRC sees your FHL as a separate “property business” from standard residential lettings, so the tax rules and reliefs can be unique.

📌 Pro Tip: Set up a separate business bank account just for your holiday let. This makes it easier to track property income and expenses, simplifies tax reporting, and gives you a ready-made audit trail if HMRC ever asks for proof. It’s the small-business move that saves you hours—and headaches—at year-end.

The 2025 rule changes: What’s new for holiday let owners

It’s not just the guests who’ll notice changes in 2025—HMRC is rolling out major updates to how tax on holiday lettings works. If you’ve relied on FHL tax perks in the past, here’s what you need to know before the next booking season kicks off.

Key tax changes from the 2024 budgets

The Spring Budget and Autumn Budget in 2024 brought a wave of reforms for holiday let owners, all taking effect from the 2025 tax year:

1. End of FHL special tax benefits: The furnished holiday let (FHL) regime is being scrapped, which means the end of special tax advantages like capital allowances on furniture and equipment, business asset disposal relief, and more generous loss relief.
2. Change in tax regime: Profits from holiday lets will now be taxed under standard rental property rules. This means no more full mortgage interest deductions—expenses will be limited to the usual rules for buy-to-lets.
3. No more business rate relief: Holiday lets may now be liable for council tax instead of benefiting from business rates relief. Check local rules, especially if you operate in Wales or areas with specific short-term letting regulations.
4. Classification shift: Properties that previously met FHL requirements will be treated as regular rental or residential properties for tax purposes, and taxed at your personal basic rate or higher rate of income tax (or corporation tax if owned by a company).

UK-wide impact (including Wales)

While these rules apply across the UK, some areas (like Wales) may have extra requirements or local council rules for short-term lets—so it’s crucial to check your specific situation, especially if you’ve been claiming small business rate relief.

📌 Pro Tip: If your holiday let relied on FHL perks for profitability, review your business plan now. A proactive chat with a tax adviser could uncover ways to restructure, manage future profits, or even time your property sales for the best tax outcome.

Tax relief and allowable expenses

What you can claim as a holiday let owner is about to change—so understanding the tax relief and allowable expenses rules for FHLs (furnished holiday lets) vs. regular rental properties is more important than ever.

Before the changes: What FHL owners could claim

Until 2025, FHL status brought some enviable perks:

• Full deduction of finance costs: Including all mortgage interest against your rental income.
• Capital allowances: The cost of furniture, appliances, and equipment could be claimed up front, reducing your profits for tax.
• Business rates relief: Many FHLs paid business rates (often with small business rate relief) instead of council tax.
• Broader allowable expenses: Cleaning, repairs, utilities, insurance, agent fees, and even advertising counted as deductions.
• Pension contributions: Profits from FHLs could count as relevant UK earnings for pension purposes, letting landlords make larger tax-advantaged contributions.

After the changes: Standard rental property rules apply

From the 2025 tax year onward, holiday lets lose their FHL status and are taxed under regular rental property rules:

• Restricted finance costs: Mortgage interest is now subject to the 20% basic rate tax credit system (no full deduction for higher rate taxpayers).
• No more capital allowances: Only replacement of domestic items (like-for-like furniture and appliances) can be deducted—not upgrades or new purchases.
• Council tax replaces business rates: Most holiday lets will pay council tax going forward; business rates relief is largely disappearing.
• Allowable expenses: The list narrows to essential running costs: cleaning, repairs, insurance, agent fees, utilities, and replacement of domestic items.
• Pension contributions: Rental profits (unlike FHL profits) typically can’t be used for tax-relieved pension contributions.

Reporting expenses for your holiday let business or company

• Individual landlords: Deduct expenses directly on your self assessment, being careful to claim only what’s allowed under the new rules.
• Limited companies: Expenses and finance costs go through your company’s annual accounts and are subject to corporation tax rules.
• Replacement of domestic items: Only replacements (not initial purchases or upgrades) are claimable, and you’ll need receipts and records to back up every claim.

📌 Pro Tip: Update your record-keeping now. Separate out each expense by type—repairs, replacements, mortgage interest, etc.—so you’re ready to show exactly what’s deductible under the new rules, without scrambling at tax time.

If you’re still working out how the 2025 changes affect your holiday let—or whether your setup still makes financial sense—it’s a smart time to get advice. You can book a free no-obligation mortgage review with a tax adviser through Unbiased, tailored specifically for holiday let owners navigating the new rules.

Capital Gains Tax, CGT reliefs and inheritance tax

Thinking of selling your holiday let—or passing it on one day? Understanding how capital gains tax (CGT), CGT reliefs, and even inheritance tax work for holiday lets will make a big difference to your planning (and your bill).

Selling a holiday let: How CGT applies

When you sell a holiday let property, you’re potentially liable for capital gains tax on the profit (sale price minus original purchase price and certain allowable costs).

• Tax rate: Your gain is taxed at either 18% or 24% (for the 2024/25 tax year), depending on whether you’re a basic or higher rate taxpayer—and whether the asset is residential or non-residential.
• Reporting: You’ll need to report the sale and pay any CGT due—often within 60 days of completion for UK property.

Changes to CGT reliefs for holiday let owners

The end of the furnished holiday let (FHL) regime means the loss of several valuable CGT reliefs:

• Private residence relief: Only available if you genuinely lived in the property as your main home (rare for true holiday lets).
• Business Asset Disposal Relief (BADR): From April 2025, most holiday let owners will no longer qualify—previously, this allowed you to pay a lower 10% CGT rate on some gains.
• Rollover relief and hold-over relief: These business-related reliefs, which let you defer or reduce CGT when reinvesting in new business assets, are ending for holiday lets.
• What’s left? After the changes, holiday lets will generally only qualify for the same reliefs as standard rental properties—meaning fewer ways to cut your CGT bill.

Inheritance tax and holiday properties

Planning to keep your holiday home in the family?

• Inheritance tax (IHT): Holiday lets are usually counted as investment properties for IHT—so, unless they qualify as a true trading business (which is rare under new rules), they’ll count toward your estate’s taxable value.
• Advance planning: Gifts, trusts, and careful succession planning can help reduce the IHT bill—but professional advice is key, especially as rules tighten.

📌 Pro Tip: If you’re considering selling, gifting, or passing down a holiday let, get professional tax advice early. With FHL reliefs ending, the right timing (or planning) could save you thousands in tax.

Local taxes, stamp duty and holiday let rules

Running holiday cottages or a holiday let business means navigating a maze of local taxes and compliance rules—especially as changes roll in for 2025.

Council tax vs. business rates

Whether your holiday accommodation pays council tax or business rates depends on how it’s used and let out:

• Council tax: Most holiday lets will now fall under council tax unless they meet specific criteria for commercial use (like the 70-day rule).
• Business rates: To qualify, your property typically needs to be available to let for at least 140 days a year and actually let for at least 70 days (rules can be stricter in Wales and some regions). With the FHL regime ending, more properties are likely to be reclassified for council tax.

In Wales: Local authorities have tightened occupancy and income rules for holiday cottages, and council tax premiums can be steep for “empty” or rarely used second homes. Always check your local council’s latest requirements.

Stamp duty on holiday let properties

• Buying: Purchasing a holiday let usually means paying the higher rates of Stamp Duty Land Tax (SDLT) (or Land Transaction Tax in Wales), just like with buy-to-lets or second homes.
• Transfers or sales: Transferring the property into joint names or a company, or selling it on, can also trigger stamp duty—even if there’s no money changing hands. Always factor in this cost, especially if restructuring ownership.

📌 Pro Tip: Review your property’s letting pattern every spring—if you’re close to a threshold for business rates or council tax, a few extra bookings can save you hundreds (or even thousands) in local taxes.

Holiday let tax: Your 2025 readiness checklist

The rules around tax on holiday lettings are changing, but a little preparation goes a long way. Here’s your step-by-step to keep your tax return stress-free (and your profits healthy):

1. Review your ownership structure

Decide if it still makes sense to hold your holiday let as an individual or if a limited company could offer more flexibility (or tax savings) post-2025.

2. Update your tax return calculations

Double-check profit forecasts under the new rules, and ensure you’re using the latest tax treatment for FHL profits and expenses.

3. Forecast your FHL profits post-2025

Account for lost tax benefits and run the numbers: how will the end of capital allowances and full mortgage interest relief affect your bottom line?

4. Track finance costs and expenses

Start separating out each type of finance cost and allowable expense now—so you’re ready for stricter HMRC scrutiny and can avoid headaches at tax return time.

5. Adjust for lost tax benefits

Revisit your business plan to factor in the end of FHL perks. Will your property still be profitable, or is it time to tweak your letting strategy?

6. When to seek professional advice

Consult a tax adviser if you face complex capital gains, are planning to pass the property on, or want to explore running your holiday let as a full trading business.

📌 Pro Tip: Build a rolling tax calendar with reminders for updating your ownership structure, reviewing your expenses, and running a “mid-year tax check”—so you’re always ahead of HMRC’s next move (and not scrambling at the deadline).

Stay ahead—and actually enjoy your holiday let

Tax on holiday lettings doesn’t have to be a mystery. With the right know-how (and a dash of humor), you can update your strategy, claim every allowance, and keep both HMRC and your guests happy.

Want to check your holiday let still makes financial sense under the new rules? Get a free mortgage review through Unbiased and speak to an adviser who understands short-term lets. No pressure, just tailored advice—and maybe a little more money for that hot tub upgrade.

Frequently Asked Questions