Holiday lets: the tax regime and why the rules keep changing
Furnished holiday lettings have had a more favourable tax regime than ordinary rentals for years. That advantage is being withdrawn, and the timing matters.
Furnished holiday lettings have historically been treated as a trade rather than an investment, which brought advantages: full relief for mortgage interest, capital allowances on furniture and equipment, business asset disposal relief on sale, and the ability to offset losses against other income.
The regime has always had conditions attached, and it is being reformed. Anyone buying a holiday let on the strength of the old tax treatment needs to establish the current position rather than relying on what was true a few years ago.
The qualifying conditions
To qualify as a furnished holiday let, a property has historically had to meet availability and letting thresholds, and be furnished and let commercially. The thresholds are the part that catches people out, because a property used heavily by the owner for part of the year may not qualify.
- Available for commercial letting for at least 210 days in the tax year
- Actually let for at least 105 days of that year
- Not let to the same tenant for more than 31 continuous days for more than 155 days in the year
- Furnished, and let on a commercial basis with a view to profit
- In the UK or the EEA, for the UK regime
What has changed
The tax advantages of furnished holiday lettings are being withdrawn, with the effect that the profits will be treated as ordinary property income rather than trading income. That removes the full mortgage interest relief, the capital allowances, and the business asset disposal relief on sale.
The practical consequence is that a holiday let bought primarily for its tax treatment no longer has that justification, and the investment case has to stand on the income and the capital growth alone. Anyone with an existing holiday let should take advice on the transition and on whether restructuring is worthwhile.
The non-tax considerations
The tax position is only part of it. Holiday lets carry higher management intensity than a standard let — changeovers, cleaning, guest communication, higher wear — and higher running costs, including utilities, broadband, council tax or business rates, and often a management fee of 20% to 30% of revenue.
They also carry regulatory risk that varies by area. Some councils operate licensing or planning restrictions on short-term lets, and the position in a popular coastal or rural area can change quickly in response to local housing pressure. Check the current policy for the specific property, not just the tax regime.
Common questions
- Are furnished holiday lets still worth it?
- That depends on the income rather than the tax treatment, because the tax advantages are being withdrawn. A holiday let can still produce a higher gross income than an assured shorthold tenancy in the right location, but it carries higher costs and more management. Run the numbers on the net income and the time you will spend, not on the historic tax position.
- How many days must a holiday let be available and let?
- The historic thresholds were availability for at least 210 days and actual letting for at least 105 days in the tax year, with restrictions on longer lets. These thresholds were the qualifying conditions for the furnished holiday lettings regime. Confirm the current requirements before relying on them, because the regime has been under reform.