Furnished holiday let ownership and tax considerations

Tax implications of holiday let ownership can be a complex area.

Following changes announced in the UK Spring Budget in 2024, the UK government abolished the Furnished Holiday Lettings (FHL) tax regime as of April 2025.

However, you can still maximise your tax efficiency in some key areas. Read on for details.*

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Or read on to discover more about furnished holiday let ownership.

Rental statement for holiday lets 

The profit from a holiday let is calculated in the same way as other commercial buildings: you pay income tax on the rents, less a deduction for allowable expenses. This rental statement is normally prepared for the year to 5 April, and the tax payment would generally be half on 31 January, and half on 31 July in the following year. So, for the year ending 5 April 2025, you would pay half the tax on 31 January 2026, and half on 31 July 2026.

Tax-deductible allowable expenses 

There are many expenses that you can claim, and they include repairs, mortgage interest, cleaning, laundry, heat and light, broadband, water and business rates, letting commission, welcome pack, replacement furnishings and furniture, travelling costs, gardening, insurance, gas safety checks, hot tub maintenance and fire safety equipment amongst many others. 

You can also claim reasonable wages paid to family members if they work in the business. You cannot claim for property alterations and improvements, private items or the capital element of your mortgage repayment.

Business rates for holiday lets

As the holiday let is a business, your local council will charge you non-domestic rates (or business rates). Whilst that might appear to be an issue, if you only have one property, and its rateable value is below £12k, you should not actually pay as you will qualify for small business rate relief. For properties with a rateable value of between £12,001 to £15,000, the rate of relief will go down gradually from 100% to 0%. If you own more than one property, you need to consider this carefully and seek advice. You will, however, have to pay to have your rubbish collected.

It should be noted the qualifying days for business rates are different from those used by the HMRC, and they differ depending on where your property is located. In England, from 1st April 2023, and in Scotland, the property must be available to let for short periods for at least 140 days in total over the current and previous tax years and be actually let for 70 days in the last 12 months. Whereas in Wales, the property must be available to let for at least 252 days in total over the current and previous tax years and be actually let for 182 days in the last 12 months.

If you don’t meet these rules, your property will become liable for council tax with little or no relief.

Furnished Holiday Lets and VAT

The furnished holiday let business will need to register for VAT if the gross rentals for a year exceed £90,000. Sometimes, if you have carried out major renovation works on the property, you might wish to voluntarily register for VAT, even if your turnover is below the threshold, so you can reclaim the VAT on the costs. Advice is needed on this complex topic to ensure you make the right decision.

Who should own the holiday let? 

This is a big topic, and the answer is to seek professional advice before you buy as it depends on everyone’s own circumstances.

The main options are sole trader, partnership, LLP or limited company. 

As the purchase is probably the biggest single expense in running an FHL, it is vital to get it right as it affects every single tax, stamp duty, income tax, corporation tax, capital gains tax, business rates, VAT and even inheritance tax. It also affects the potentially significant embedded capital allowances claim mentioned earlier.

If you are interested in the differences between buying a holiday let through a limited company versus buying in your personal name, please read our additional blog by clicking below:

Limited company or sole trader

How to finance a purchase of a holiday let

Whilst most costs associated with raising finance are allowable, if the purchase is structured correctly, there may be ways to obtain tax relief on interest payments previously treated as non-allowable domestic mortgages on your private house.

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*This article was supplied by R.T. Marke & Co Limited, and holidaycottages.co.uk cannot accept any liability for the content. It is published for information only and offers no advice. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.