Furnished Holiday Lets
The tax rules for holiday lets changed significantly after Finance Act 2024. Here is what you need to know.
What Changed
Furnished Holiday Lets had preferential tax treatment compared to standard residential lets. After Finance Act 2024, most of those advantages were removed for new FHLs.
What FHLs Used to Offer:
- Mortgage interest relief at your marginal rate
- Capital gains tax reliefs (rollover, business asset taper)
- Ability to claim plant and machinery allowances
What Changed:
- Mortgage interest relief now restricted to 20%
- Capital gains tax treatment same as residential
- Most plant and machinery allowances withdrawn
The only real remaining FHL advantage is the ability to claim business expenses that standard residential lets cannot, but even this is now more limited.
Existing FHL Owners: Check Your Status
If you already owned an FHL before April 2025, you may have "grandfathered" status under the old rules for a transitional period. The exact transition rules are complex. If you are in this situation, get specific advice before making any decisions.
When FHL Still Makes Sense
Despite the rule changes, there are situations where a holiday let can still work better than a standard rental:
Location Matters
Genuine holiday destinations with strong year-round demand (Lake District, Cornwall, Scottish Highlands) can command premium pricing.
Active Management
Holiday lets require more work. If you enjoy that work and are not paying a management agent, your effective return can be higher.
Premium Pricing
A well-presented holiday let in the right location can achieve 2-3x the nightly rate of monthly residential rent.
When Standard Rental Makes More Sense
- High demand for residential housing: In areas with acute residential shortages, standard tenants are easier to find and longer-lasting. Void periods drop significantly.
- You want a hands-off investment: If you do not want to manage cleaning, guest communication, and maintenance between lets, a standard rental with an agent is far less work.
- Your numbers do not support holiday letting: Run the actual comparison. If your holiday let income after agency fees, cleaning, and void periods is not materially better than standard rental, the additional complexity is not worth it.
A Realistic Example
Sarah owns a two-bedroom cottage in North Yorkshire:
Holiday Let Scenario
- Peak season: £900/week
- Shoulder seasons: £500/week
- Winter: £350/week
- Conservative annual: £28,000 gross
- Less agency (25%), cleaning, utilities: £9,800
- Less void (35%): £9,800
- Net: £8,400
- Mortgage interest: £4,200
- Net profit: £4,200
Standard Rental Scenario
- Market rent: £850/month
- Annual: £10,200
- Less management (10%): £1,020
- Less maintenance: £500
- Void (4 weeks): £653
- Net: £8,027
- Mortgage interest: £4,200
- Net profit: £3,827
In this example, the holiday let is marginally better. But only if Sarah is actively managing it and achieving those nightly rates.
Compare Standard Residential vs FHL
| Factor | Standard Residential | Furnished Holiday Let |
|---|---|---|
| Mortgage interest relief | 20% basic rate | 20% basic rate (same) |
| Capital gains tax | 18%/28% | 18%/28% (same as residential) |
| Management effort | Low | High |
| Void periods | Low (2-4 weeks) | High (30-40%) |
| Income potential | Stable monthly | Variable, potentially higher |
| Best for | Passive investors | Active managers in good locations |