Holiday Let Stamp Duty
When purchasing a property intended for holiday letting, you will almost always face the higher rates of stamp duty (additional property surcharge). This is the same treatment as buy-to-let properties. Calculate your exact liability using our stamp duty calculator before proceeding.
⚠️ Surcharge Applies Unless Main Residence
Unless the holiday let will be your ONLY or main residence (which defeats the purpose of holiday letting), you'll pay the 5% surcharge in England, 8% ADS in Scotland, or higher rate bands in Wales on top of standard SDLT.
Regional Stamp Duty Rates:
England (SDLT):
| Property Band | Standard Rate | With 5% Surcharge |
|---|---|---|
| Up to £125,000 | 0% | 5% |
| £125,001 - £250,000 | 2% | 7% |
| £250,001 - £925,000 | 5% | 10% |
| £925,001 - £1,500,000 | 10% | 15% |
| Over £1,500,000 | 12% | 17% |
Scotland (LBTT):
8% Additional Dwelling Supplement (ADS) on the ENTIRE purchase price, plus standard LBTT bands.
Example: £300,000 holiday let in Scotland = £24,000 ADS + £4,600 standard LBTT = £28,600 total
Wales (LTT):
Wales uses separate higher rate bands for additional properties rather than a flat surcharge. Rates range from 5% to 17% depending on property value.
FHL Regime Abolished April 2025
On 6 April 2025, the UK government abolished the Furnished Holiday Letting (FHL) tax regime. This ended decades of preferential tax treatment for short-term holiday lets.
What Was the FHL Regime?
The FHL regime treated qualifying holiday lets as trading businesses rather than property rental for tax purposes. Properties qualified if:
- Available for commercial letting at least 210 days per year
- Actually let for at least 105 days per year
- Not let to the same person for more than 31 consecutive days
- Located in the UK or European Economic Area
Tax Benefits Under Old FHL Regime:
- ✓ Capital Allowances: 100% first-year allowance on furniture, fixtures, equipment
- ✓ CGT Relief: Business Asset Disposal Relief (10% CGT rate on first £1M gains)
- ✓ Pension Contributions: Could contribute FHL profits to pension with tax relief
- ✓ Mortgage Interest: Fully deductible (not subject to Section 24)
- ✓ Loss Relief: Could offset losses against other income
All These Benefits Removed from 6 April 2025
Holiday lets are now treated identically to standard buy-to-let properties for tax purposes. This represents a significant tax increase for many holiday let owners, particularly regarding capital allowances and mortgage interest relief. See our buy-to-let guide for a full overview of how buy-to-let taxation now applies to holiday lets.
Income Tax on Holiday Lets
Holiday let income is now taxed the same as standard residential rental income. You declare it on your Self Assessment tax return (SA105 property pages) and pay income tax at your marginal rate.
Allowable Expenses:
- • Advertising and marketing (Airbnb fees, listing sites)
- • Property management fees
- • Cleaning and laundry services
- • Utilities (gas, electricity, water, broadband)
- • Council tax or business rates
- • Buildings and contents insurance
- • Repairs and maintenance (not improvements)
- • Accountancy fees for tax return preparation
- • Legal fees for lets under 12 months
Calculating Taxable Profit:
Gross Rental Income
− Allowable Expenses
− Mortgage Interest (20% tax credit only)*
= Taxable Profit
*Mortgage interest is no longer a deductible expense, see Section 24 below
Capital Allowances
❌ No Longer Available from 6 April 2025
This is arguably the BIGGEST tax change from FHL abolition. Previously, holiday let owners could claim 100% Annual Investment Allowance (AIA) on:
- • Furniture (beds, sofas, tables, wardrobes)
- • White goods (fridges, washing machines, dishwashers)
- • Fixtures (curtains, carpets, lighting)
- • Equipment (TVs, kitchen appliances, hot tubs)
Impact Example:
Scenario: Purchase £15,000 of furniture and fixtures for new holiday let
| Item | Before April 2025 | After April 2025 |
|---|---|---|
| Capital expenditure | £15,000 | £15,000 |
| Tax deduction (40% taxpayer) | £6,000 immediately | £0 |
| Out-of-pocket cost | £9,000 | £15,000 |
Under the old FHL regime, you could write off the full £15,000 in year one, saving £6,000 in tax (for 40% taxpayer). For new expenditure on or after 6 April 2025, the initial purchase is a capital cost with no immediate tax relief: it's added to your CGT base cost when you sell the property.
What you CAN still claim: Replacement of Domestic Items Relief
Former FHL businesses are now eligible for the same "replacement of domestic items relief" that applies to standard property businesses. This gives a deduction when you REPLACE existing items (furniture, white goods, soft furnishings) with equivalent items. You cannot claim it on the initial purchase, only on replacements after the original item is no longer used.
Example: replace a worn-out sofa for £800 and you can deduct £800 from rental profits that year. Buy a brand-new sofa for the first time and there is no deduction.
Transitional rule: existing capital allowances pool
If your FHL business already had a capital allowances pool of expenditure before 6 April 2025, HMRC allows you to continue claiming writing-down allowances on that existing pool. Only NEW expenditure on or after the operative date must be considered under the standard property business rules.
Capital Gains Tax: BADR & Other Reliefs Lost
Arguably the most expensive change for long-term holiday let owners. Pre-April 2025, FHL properties were treated as "trading business assets" for CGT, giving access to several reliefs not available to standard landlords. All of these reliefs are now withdrawn for FHL businesses.
Reliefs Withdrawn from 6 April 2025
- Business Asset Disposal Relief (BADR): 10% CGT rate on first £1 million of lifetime gains. Without BADR, FHL gains taxed at 18% (basic rate) or 24% (higher rate) for residential property.
- Roll-over relief: Defer CGT by reinvesting proceeds into another qualifying business asset within 3 years. No longer available.
- Gift relief (hold-over): Defer CGT when gifting the property to family. No longer available for FHL gifts.
- Relief for loans to traders: Tax relief on irrecoverable loans made to the FHL business. No longer available.
- Substantial shareholdings exemption (corporate): Companies disposing of trading subsidiaries that held FHLs lose this exemption.
BADR Loss Example
Sell a holiday cottage with a £400,000 gain (above the £6,000 annual exempt amount):
- • Before April 2025 (with BADR): 10% × £394,000 = £39,400 CGT
- • After April 2025 (higher-rate residential): 24% × £394,000 = £94,560 CGT
- • Extra tax: £55,160
Planning point: 3-year cessation window for BADR
HMRC's transitional rule: if your FHL business ceased before 6 April 2025 (or 1 April 2025 for Corporation Tax), you can still claim BADR on a disposal that happens within the normal 3-year period following cessation. This protects owners who wound up their FHL business before the abolition date.
Pension Contributions: FHL Profits No Longer Count
Under the old FHL rules, profits from a furnished holiday let counted as "relevant UK earnings" for pension contribution purposes. This meant FHL income could support tax-relievable pension contributions up to the annual allowance.
From 6 April 2025, FHL income is no longer treated as relevant UK earnings. It is now investment income, like standard rental income, which does NOT support pension contributions for tax relief purposes.
Who this affects most
Owners whose only earned income was their FHL business (for example retirees or full-time holiday-let operators with no other employment). Without other relevant earnings, the maximum tax-relievable pension contribution drops to £3,600 per year (the basic relief floor). Higher earners with employment or self-employment income are unaffected.
Buying soon? Get your stamp duty checked before you commit
A specialist can confirm the right figure and flag any reliefs you qualify for.
Transitional Rules & Anti-Forestalling
HMRC built specific transitional rules into the FHL abolition to protect legitimate planning while preventing pre-abolition tax arbitrage.
Anti-forestalling rule (from 6 March 2024)
Announced at Spring Budget 2024, this rule applies from 6 March 2024 onwards. It prevents using unconditional contracts to lock in pre-abolition CGT reliefs (particularly BADR) on disposals that complete after the abolition date.
In plain English: if you exchanged contracts to sell your FHL between 6 March 2024 and 5 April 2025 purely to lock in the 10% BADR rate, HMRC can re-characterise the disposal as taking place at the later completion date, so the post-abolition CGT rate applies. Genuine commercial sales are unaffected.
Loss carry-forward (newly more flexible)
Under the old rules, an FHL loss could only be carried forward to set against future profits of the same FHL business. After abolition, those losses can be carried forward and set off against future profits of the person's UK or overseas property business as a whole. This is a small win for owners with accumulated FHL losses.
Business Rates vs Council Tax
One benefit that remains post-FHL abolition: holiday lets can still qualify for business rates rather than council tax. This can result in significant savings. The holiday let tab on our business stamp duty calculator shows the full upfront SDLT cost.
Qualification Criteria:
Your property qualifies for business rates assessment if it meets BOTH tests:
- Availability Test: Available for commercial letting at least 140 nights per year
- Letting Test: Actually let for at least 70 nights per year
Small Business Rate Relief:
Properties with rateable values below certain thresholds can claim Small Business Rate Relief (SBRR):
| Rateable Value | Relief |
|---|---|
| Under £12,000 | 100% relief (£0 rates) |
| £12,001 - £15,000 | Tapered relief |
| Over £15,000 | No relief |
✓ Potential Saving
Many holiday cottages and apartments have rateable values under £12,000, meaning they pay £0 in business rates while comparable council tax might be £1,500-2,500 per year. This is tax-deductible savings of £1,500-2,500 annually.
Mortgage Interest Relief
From 6 April 2025, holiday lets are subject to Section 24 mortgage interest restrictions. This is a significant tax increase for leveraged holiday let investors. For comprehensive tax planning, consult our landlord guide covering all property investment tax changes.
How Section 24 Works:
- Mortgage interest is NO LONGER deductible as an expense
- Instead, you receive a 20% tax credit on the interest paid
- This means higher-rate (40%) and additional-rate (45%) taxpayers lose out significantly
Worked Example:
Scenario: £300,000 mortgage at 5% interest rate = £15,000 annual interest. £30,000 rental income, £8,000 other expenses.
| Item | Old FHL Rules | Section 24 Rules |
|---|---|---|
| Rental income | £30,000 | £30,000 |
| Other expenses | −£8,000 | −£8,000 |
| Mortgage interest | −£15,000 | −£0 |
| Taxable profit | £7,000 | £22,000 |
| Tax at 40% | £2,800 | £8,800 |
| Less: 20% interest credit | - | −£3,000 |
| Net tax payable | £2,800 | £5,800 |
| Annual tax increase | +£3,000 | |
⚠️ Higher-Rate Taxpayers Most Affected
Basic-rate (20%) taxpayers see minimal change since they get a 20% credit. But higher-rate (40%) and additional-rate (45%) taxpayers effectively lose 20-25% of their mortgage interest tax relief. This can turn profitable holiday lets into loss-making ventures.
VAT Considerations
Holiday accommodation can be subject to VAT if your annual turnover exceeds £90,000. Most small-scale holiday let owners operate below this threshold and remain unregistered.
VAT Registration Threshold:
- Turnover under £90,000: VAT registration optional
- Turnover over £90,000: Must register for VAT within 30 days
Standard vs Exempt Supply:
Holiday accommodation is standard-rated for stays under 28 days, meaning you charge 20% VAT on the booking price. Long-term lets (28+ days) can be exempt.
Flat Rate Scheme:
Small businesses with turnover under £150,000 can use the Flat Rate Scheme at 10.5% for holiday accommodation. This can simplify VAT accounting:
- • Charge full 20% VAT on bookings
- • Pay only 10.5% of gross turnover to HMRC
- • Keep the 9.5% difference
- • Cannot reclaim VAT on purchases (except capital assets over £2,000)
⚠️ Competitive Disadvantage
VAT registration can make your prices 20% higher than unregistered competitors on Airbnb and booking.com. Consider absorbing some VAT to remain competitive, reducing your actual margin.
Airbnb & Short-Term Lets
Short-term letting via Airbnb, Vrbo, and other platforms faces increasing regulation in 2026. Be aware of local restrictions and safety requirements.
90-Day Rule (London):
In Greater London, short-term letting of your main home is restricted to 90 nights per year without planning permission. This applies to the property, not individual bookings.
Exceeding 90 nights can result in enforcement action and fines up to £20,000. Platforms like Airbnb automatically track and enforce the 90-day limit for London listings.
Planning Permission Requirements:
In some areas, converting a residential property to short-term holiday letting constitutes "change of use" requiring planning permission. This is increasingly enforced in:
- Edinburgh and other Scottish cities (licensing scheme)
- Popular tourist areas (Lake District, Cornwall, etc.)
- London boroughs with Article 4 directions
Safety Regulations:
Mandatory Requirements:
- • Gas Safety Certificate (annual inspection)
- • Electrical Installation Condition Report (every 5 years)
- • Smoke alarms on every floor
- • Carbon monoxide alarms in rooms with fuel-burning appliances
- • Fire risk assessment (for larger properties)
- • Energy Performance Certificate (EPC)
- • Portable Appliance Testing (PAT) recommended
Insurance:
⚠️ Standard Home Insurance Invalid
Standard residential buildings and contents insurance does NOT cover commercial short-term letting. You need specialist holiday let insurance covering:
- • Public liability (guest injuries)
- • Contents damage by guests
- • Loss of income (if property becomes uninhabitable)
- • Owner's personal possessions
Reviewed by
Emma Richardson, MRICS
Chartered Surveyor & Property Tax Specialist
Emma Richardson is a RICS-qualified Chartered Surveyor with over 12 years of experience in UK property taxation. She founded Calculate My Stamp Duty UK to help buyers understand the complex world of property transaction taxes.