Furnished holiday lets (FHLs) for Landlords: A guide (tax changes and beyond – 2024)
18.05.2023
9 min read
25.01.2023
7 min read
Thinking of renting out a property as a holiday let in the UK? Furnished Holiday Lets (FHLs) can be a lucrative option, but recent tax changes have impacted their attractiveness. This guide explores everything you need to know, including FHL criteria, past and present tax benefits, and how the landscape has changed for landlords in 2024.
FHLs are properties rented out on a short-term basis, typically to holidaymakers, business travellers, or anyone needing temporary accommodation.
Holiday lets can mean seriously lucrative business for landlords – as long as they’re in an area where there’s demand. Think: popular beach destinations, nature spots, city centres, and areas that are close-by to music festivals and other major attractions. Impressive or quirky properties also have the potential to go down a storm too – as proven by Airbnb; specifically its ‘OMG’ category which boasts everything from windmills to forest-shrouded submarines.
Compared to standard buy-to-let properties, they can offer higher potential rental yields. However, recent tax changes have made them less favourable from a tax perspective.
As a landlord, it’s important to know that a property needs to meet a specific set of criteria for it to be classed as a holiday let. This is because, as we touched on above, furnished holiday lets are treated differently from a tax point of view (and they generally require specific mortgages and types of insurance, too).
The UK government says that a property is classed as a furnished holiday let if:
Important note: If you don’t meet all the criteria in a given year, there are exemptions you might qualify for:
If you’re thinking of buying a property to let as a holiday rental, or turning a property you already own into one – there are some important legal considerations to be aware of.
Your local authority might require you to get planning permission to change the use of a property. Each local authority has its own set of rules and regulations around this – so it’s crucial to check with them before taking any steps towards turning a property into a short-term let venture.For example, in London, homeowners are only allowed to rent out their property for a maximum of 90 nights in a year without planning permission. For anything over that – they need to get permission.
Most buy-to-let mortgages are only valid for Assured Shorthold Tenancy agreements (AST) – the standard rental agreement for long-term lets. And residential mortgages usually rule out short-term letting or, if they allow it, there’ll be strings attached.
With all this in mind, it’s highly likely you’ll need a specific holiday let or (also called short term let) mortgage for your FHL. Because holiday let mortgages are still quite niche, you might find you need to pay a higher deposit and higher interest rates to secure one. Still, this could end up being well worth it with the right FHL strategy.
If the property you’re looking to let is leasehold, its terms and conditions might not allow holiday letting – so it’s important to check this out.
Now we’ve covered the technical stuff, let’s take a look at some of the reasons why branching out into holiday lets might be the right move for you:
Although there are a lot of variables, studies show that holiday let landlords could reap up to 30% more yield than standard buy-to-let landlords. And it’s not unrealistic to say that, in high demand areas, you could end up earning in a week from a holiday let what you’d get in a month from a standard let. Not bad.
Of course, it’s worth noting that you’ll have higher running costs and potentially more void periods. But even taking these factors into account, you could still end up earning a lot more from a holiday let if you get consistent bookings in peak seasons.
One added bonus of renting out a property as a holiday home is that you’ve then got the option of using your property yourself if you want to. This is much less likely to be the case with long-term lets where you’re renting out to tenants for months and years at a time.
As long as you make sure your property is available to rent for 210 days a year, and rented out for 105 days of the year, you could happily use it for the remaining weeks as a holiday home – say, in off-peak season.
The tax treatment of furnished holiday lets, compared to that of standard tenancies, used to be a primary consideration for landlords considering FHL investments. However, many of the tax rules that might have been advantageous in the past will be ruled out from April 2025. Let’s delve deeper into what these advantages used to be (no longer available as of April 2025).
Unlike standard buy-to-let properties, FHL landlords could deduct the full amount of interest paid on mortgages from their taxable profits.
This benefit offered a major tax advantage when selling an FHL property. BADR was a UK government program that incentivized business investment by offering a lower CGT rate on qualifying assets sold. Qualifying FHL properties benefitted from a CGT rate of only 10% compared to the standard CGT rates for residential property (which could be 18% or 24% depending on your income).
Landlords could claim tax relief for certain fixtures and furnishings purchased for the property.
Beyond BADR, FHLs offered other CGT reliefs:
The FHL regime withdrawal, effective April 6th, 2025, will eliminate most of these tax benefits. FHL properties will be subject to the standard CGT rates for residential property, interest deductions will be limited to a tax 20% credit, and other tax reliefs will no longer be available. Whilst these changes may still be outweighed by the positive performance of an FHL investment, they make FHLs a less attractive investment option than they used to be from a tax perspective.
Beyond tax, there are some potential operational downsides to consider before making any big decisions:
The nature of running lots of back-to-back short-term lets means there’s more work involved than with longer-term lets. You’re essentially running a sort-of hotel, where guests will require things like clean bedding and towels, an immaculate space, and potentially even breakfast provided. Of course, there’s always the possibility of hiring an agency to take care of the running of things for you, and you could recoup associated costs through charging a higher rate.
Factors outside your control – like the economic climate or the weather – can affect your ability to rent out your property or properties.
You’ll be responsible for paying all the bills for the property, and there’ll be more wear and tear thanks to higher footfall. You’ll need to pay for cleaning between lets, and make sure your property is accessible to people with disabilities too.
A property is classed as a furnished holiday let if it meets the criteria we outlined above – regardless of how you rent it out. It doesn’t matter whether you use Airbnb or another means to let your property – if it meets the above criteria, the government, mortgage lenders and insurers will class it as a furnished holiday let.
Yes – it’s likely you’ll need insurance that’s specific to holiday letting for your property to be covered. Standard buildings and contents insurance won’t cover you, and it’s unlikely standard buy-to-let insurance will cover you either. It’s best to speak to an insurer about getting a tailored holiday let policy.
Yes, in fact many landlords tell us that they are now considering letting their properties both as FHL and with an AST, to maximise occupancy and to make the most revenue from seasonal trends. However, the different requirements of both FHL and AST have to be taken into account and the tax implications can get complicated. Once again, our recommendation is to consult an expert when dealing with tax and compliance issues.
FHLs were once a very tax-advantageous option for landlords. While recent changes have significantly reduced their appeal, they can still be a good investment depending on your circumstances. Carefully weigh the pros and cons, conduct thorough research, and seek professional advice to make informed investment decisions.
Hammock – the accounting software for landlords – has a dedicated set of solutions designed specifically for those running furnished holiday lets. Hammock helps you keep track of both days and revenue across each holiday let property. Get in touch if you are interested.
Our guide is for educational purposes only, as we don’t provide tax advice. We always recommend consulting experts (in this case, your accountant or tax advisor) when dealing with rules and regulations.
