The 2025 UK Holiday Let Tax Changes: What Property Owners Need to Know

Written By Carolina Guimaraes Guimaraes

If you own a holiday let in the UK, you've likely heard rumblings about the significant tax changes that came into effect in April 2025. The abolition of the Furnished Holiday Lettings (FHL) tax regime has left many property owners wondering: Is holiday letting still worth it?

The short answer? Yes—but your strategy needs to adapt.

At Escapes Media, we've been helping holiday let owners navigate these changes and maximise their revenue despite the new tax landscape. In this comprehensive guide, we'll break down exactly what's changed, what it means for your bottom line, and how to structure your business moving forward.

What Actually Changed in April 2025?

The UK government abolished the Furnished Holiday Lettings (FHL) tax regime, which had provided significant tax advantages to holiday let owners for decades. Here's what you've lost:

Key Benefits Removed:

1. Mortgage Interest Relief Previously, you could deduct mortgage interest as a business expense against your rental income. This is now replaced with a basic rate tax credit (like long-term rentals), which is far less generous—especially for higher-rate taxpayers.

Example Impact:

  • Property owner earning £50,000 from holiday lets with £15,000 in mortgage interest

  • Before April 2025: Could deduct full £15,000, saving £6,000 in tax (at 40% rate)

  • After April 2025: Only get 20% tax credit = £3,000 saving

  • Net Loss: £3,000 annually

2. Capital Allowances You can no longer claim capital allowances on furniture, fixtures, and equipment. This was a huge benefit that allowed you to offset the cost of new beds, sofas, appliances, and renovations against your taxable income.

What This Means: That £10,000 kitchen renovation? It's now a straight cost with no immediate tax relief, rather than being spread over several years as a deductible expense.

3. Business Rates vs Council Tax Many holiday lets were previously assessed for business rates (often qualifying for Small Business Rate Relief = £0 rates). Now, there's increased scrutiny, and some properties may revert to council tax—which you'll need to pay in full.

4. Capital Gains Tax Treatment FHL properties previously qualified for Business Asset Disposal Relief (formerly Entrepreneurs' Relief), allowing for 10% CGT on sale. This beneficial treatment is now gone, meaning you'll pay standard CGT rates (18-28% depending on your income).

5. Pension Contributions Holiday let income was previously treated as relevant earnings for pension contribution purposes. This allowed owners to make significant tax-efficient pension contributions. This benefit has now been removed.

The Real Financial Impact

Let's look at a realistic scenario:

Case Study: 3-Bedroom Cottage in Cornwall

Annual Figures:

  • Gross rental income: £35,000

  • Mortgage interest: £12,000

  • Other expenses: £8,000

  • Net profit before tax: £15,000

Tax Bill Comparison:

Before (FHL Regime)After (New Rules)DifferenceTaxable Income£15,000£27,000+£12,000Tax at 40%£6,000£10,800+£4,800Tax Credit (20% on interest)£0-£2,400-£2,400Final Tax Bill£6,000£8,400+£2,400

Bottom Line: This property owner now pays £2,400 more in tax annually—a 40% increase in their tax bill.

So, Is Holiday Letting Still Profitable?

Yes—but you need to be strategic.

Here's the reality: despite these changes, the UK holiday let market remains strong. According to recent industry data:

  • 66% of property managers expect revenue growth in 2025

  • UK domestic tourism continues to thrive

  • Average 3-bedroom holiday let still generates £33,000+ annually

  • 80% of Brits are considering UK holiday accommodation in 2025

The market demand is there. You just need to optimize your approach.

5 Strategies to Maintain Profitability Post-Tax Changes

1. Consider a Limited Company Structure

This is the most significant decision you'll make. Operating through a Limited Company (SPV - Special Purpose Vehicle) can help mitigate many of the tax changes.

Benefits of the Ltd Company Route:

  • Corporation tax (25%) may be lower than your personal income tax rate (40-45%)

  • Full mortgage interest deductibility as a business expense

  • More flexible profit extraction through dividends and salary

  • Easier to bring in partners or investors

  • Better succession planning

Drawbacks:

  • More complex accounting and compliance

  • Costs to set up and maintain (£500-1,500 annually)

  • Potential CGT/SDLT on transfer of existing property

  • Less flexibility to use profits personally

Who Should Consider It: Higher-rate taxpayers (40%+ bracket) with significant mortgage interest will likely benefit most. Industry experts predict 40-45% of holiday let transactions will be through Ltd companies by end of 2025.

2. Optimize Your Pricing Strategy

With reduced tax efficiency, every pound of revenue matters more. Dynamic pricing is no longer optional—it's essential.

Action Steps:

  • Implement AI-powered pricing tools (PriceLabs, Beyond Pricing)

  • Review and adjust your base rates based on actual market data

  • Capture last-minute booking premiums

  • Optimize for short breaks (higher nightly rates, more turnover)

  • Consider premium add-ons (welcome hampers, late checkout, pet fees)

Real Impact: Properties using dynamic pricing see average revenue increases of 21% compared to static pricing.

3. Reduce Operating Costs

Since you can't reduce your tax burden as effectively, focus on what you can control—expenses.

Cost-Cutting Strategies:

  • Negotiate better rates with cleaning services

  • Bulk-buy supplies through wholesalers

  • Energy-efficient upgrades to reduce utility bills

  • Preventative maintenance to avoid costly emergency repairs

  • Review insurance policies annually for better rates

  • Consider co-hosting arrangements to share management costs

4. Extend Your Season

With margins tighter, you need more booking nights to maintain profits.

Tactics to Boost Shoulder Season Bookings:

  • Target remote workers for longer stays (offer workspace setup, strong WiFi)

  • Create themed packages (autumn leaf-peeping, winter cosiness, spring renewal)

  • Adjust minimum night requirements (drop from 7 to 3 nights in low season)

  • Partner with local attractions for package deals

  • Market to different demographics (retirees mid-week, couples off-season)

Data Point: Properties that actively market shoulder seasons see 15-20% higher annual occupancy rates.

5. Professional Marketing = Higher Revenue

This isn't the time for DIY marketing. Professional holiday let marketing pays for itself multiple times over.

What Professional Marketing Delivers:

  • Optimized listings across all major platforms (Airbnb, Booking.com, Vrbo)

  • Professional photography that increases booking rates by 30-40%

  • SEO-optimized property descriptions

  • Social media management and content creation

  • Email marketing to past guests for repeat bookings

  • Revenue management and pricing strategy

  • Review management and reputation building

ROI Reality: Most property owners see 3-5x return on marketing investment through increased bookings and higher nightly rates.

The Planning Permission Question

Beyond tax changes, new planning regulations now prevent new holiday lets in certain UK tourist hotspots including:

  • Scarborough

  • Port Isaac

  • Southwold

  • St Ives

  • Parts of the Lake District

  • Select areas of Cornwall and Devon

What This Means:

  • If you already operate a holiday let in these areas, you're grandfathered in—protect this status

  • Less competition from new entrants in these prime locations

  • Existing properties may see increased demand

  • If considering purchasing a new holiday let, verify planning status first

When Does Holiday Letting Still Make Sense?

Holiday letting remains highly profitable when:

  • Your property is in a high-demand location with strong occupancy potential

  • You can achieve average occupancy rates above 70%

  • Your mortgage-to-value ratio is relatively low

  • You're willing to invest in professional management and marketing

  • You can operate through a tax-efficient structure

  • You view it as a long-term investment (5+ years)

You should reconsider if:

  • Your occupancy is consistently below 50%

  • You have high mortgage debt with minimal equity

  • You're in an oversaturated or declining market

  • You don't want to actively manage or pay for management

  • You need immediate cash flow rather than long-term asset appreciation

Making the Transition: Your Action Plan

If you're committed to staying in the holiday let market, here's your implementation timeline:

Immediate Actions (This Month):

  1. Consult with an accountant specialising in holiday lets about Ltd company structure

  2. Review your current pricing strategy—implement dynamic pricing

  3. Analyse your Q1-Q3 2025 performance data

  4. Calculate your actual tax impact under new rules

  5. Audit your operating expenses for reduction opportunities

Within 3 Months:

  1. Decide on business structure (personal vs Ltd company)

  2. If going Ltd route, engage solicitor and accountant for setup

  3. Hire professional photographer if you haven't already

  4. Upgrade your marketing approach (or hire an agency—hello! 👋)

  5. Install property improvements that boost bookings (EV charger, hot tub, etc.)

Within 6 Months:

  1. Complete business structure transition if applicable

  2. Have full year of data under new tax regime

  3. Evaluate performance and adjust strategy

  4. Consider whether to expand portfolio or optimise existing property

  5. Review and renew all service contracts and partnerships

The Escapes Media Approach

At Escapes Media, we help holiday let owners navigate exactly these challenges. Our clients have adapted successfully to the 2025 tax changes by focusing on what we can control: marketing excellence, revenue optimization, and operational efficiency.

Our Recent Results:

  • Average client revenue increase: 34% year-over-year

  • Occupancy rate improvement: +18 percentage points

  • 89% of our clients exceeded their 2024 revenue targets despite tax changes

  • Average ROI on our services: 4.2x investment

The Bottom Line

Yes, the tax landscape has changed. Yes, it's more challenging than before. But the fundamentals remain strong:

  • Demand for UK holiday accommodation is robust

  • Professional marketing dramatically increases revenue

  • Strategic business structuring can mitigate tax impacts

  • Well-managed properties in good locations are still highly profitable

The holiday let owners who will thrive in 2025 and beyond are those who adapt, professionalise, and focus relentlessly on guest experience and marketing excellence.

The question isn't whether holiday letting is still worth it—it's whether you're willing to do what it takes to succeed in the new environment.

Carolina Guimaraes Guimaraes
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