My Holiday Let Is No Longer Tax-Efficient: What Now?

Your holiday let is now taxed like a normal BTL, but with higher running risk. You need to decide fast whether to keep trading, pivot use, or exit while CGT is still tolerable.

"This guide provides general information about UK landlord tax obligations. It is not financial or legal advice. Tax treatment depends on your individual circumstances and may change. Consider consulting a qualified accountant or solicitor for advice specific to your situation."

1. What you lost from April 2025

From 6 April 2025 (1 April for companies), the Furnished Holiday Let (FHL) regime is gone:

You have lost:

• Full mortgage interest deduction - Interest is now restricted to a 20% tax credit, same as other residential landlords. If you are on 40-45%, that extra tax lands directly on your cashflow.
• Capital allowances on new spend - No plant and machinery allowances on furniture/fixtures purchased after April 2025. You now use Replacement of Domestic Items Relief only, like standard BTL.
• CGT business reliefs - Business Asset Disposal Relief (BADR) at 10% has gone for FHL disposals after April 2025, along with roll-over and hold-over reliefs. You now face the standard residential CGT rates: 18% basic-rate, 24% higher/additional-rate.
• Pension treatment - FHL profits no longer count as relevant earnings for pension contributions. You cannot use them to justify higher personal pension input.

On top of that, if you are in Wales and fail the 182-day / 252-day thresholds, you get dragged back into council tax plus premiums, so the whole model can fall over.

2. Your four real options from 2025-26

Option 1 - Sell while the numbers still work

Now:

• You pay residential CGT at 18% or 24% on gains, no BADR.
• If you stopped qualifying as FHL and ceased trading by 5 April 2025 and meet tight conditions, there is a narrow window where legacy BADR at 10-14% can still apply to some disposals, but for most people that ship has already sailed or is closing rapidly.

Why you might sell:

• You are highly geared and Section 24-style interest restriction makes net profit marginal or negative.
• The property is in a market where AST rents are weak, so conversion does not help enough.
• You would rather bank a six-figure gain at 18-24% CGT now than ride into an uncertain regulatory and tourism environment.

Option 2 - Convert to a long-term AST

Here you accept that this is now just a normal BTL:

• Same interest restriction and CGT as post-FHL holiday let.
• Simpler management, lower voids, and in many areas far more stable net income.

Best where:

• Local AST rents are strong relative to holiday rates (big cities, some commuter or university towns).
• You are in Wales or second-home hotspots, where failing the 182-day rule means painful council tax premiums; a steady AST can look better than chasing business-rates status.

Option 3 - Pivot to serious serviced accommodation (proper business)

Instead of "hobby Airbnb", you:

• Run full-fat serviced accommodation: extended-stay, corporate, insurance lets, with more professional marketing and higher average nightly rates.
• Potentially move into a company structure and treat it more like an operating business than passive property.

This only makes sense if:

• You have strong demand year-round (big cities, major tourist hubs).
• You are comfortable with operational intensity (or paying a specialist operator).
• You accept that, tax-wise, you are still in the residential bucket for interest and CGT; you are trying to out-earn the worse tax position through higher gross profit, not change the tax rules.

Option 4 - Hold as is, under worse tax conditions

You stay as a holiday let, accept:

• Higher annual tax due to interest restriction and loss of capital allowances.
• Standard CGT on exit.
• Possibly higher local costs (licensing, cleaning wages, EPC upgrades, tourism levies).

This is only rational if:

• The property is prime stock in a top tourist area, with strong year-round demand.
• Even post-FHL, your net profit after tax is still attractive vs alternatives.
• You use the property yourself and that lifestyle value is part of your return.

3. How to decide: a quick filter

Work through these in order.

Tax band and mortgage level

• Higher/additional-rate + big mortgage = the FHL abolition is brutal; net income can fall thousands per year.
• Basic-rate + low mortgage = the hit is noticeable but survivable.

Location and demand

• Tourist hotspot with 80%+ seasonal occupancy vs marginal area that barely hits 182 days in a good year.
• Strong AST market vs weak one.

Lifestyle use

• If you actually holiday there 6 weeks a year, selling is not just a tax decision.
• If you never go, treat it as a cold investment.

Time horizon

• Planning to hold 10+ years and happy to ride regulations?
• Or already thinking about an exit to de-risk and redeploy?

Country and local rules

• Wales: interplay of 182-day rule, business rates, and council tax premiums can kill marginal holiday lets.
• England / Scotland: regulatory pressure rising, but the biggest hit is still the tax change.

4. A simple way to frame your next move

In plain language:

If you are high-rate, heavily mortgaged, and in a marginal holiday area, the default should be: = run the numbers for an AST, and if that is not attractive, plan an orderly sale.

If you are basic-rate, low-LTV, and in a strong tourist market, you likely: = keep trading as a holiday let, but update your forecasts for higher tax and factor in EPC and local rules.

If you genuinely want to treat this as a business, not an investment, you might: = move towards serviced accommodation in a company, accept the complexity, and aim for higher operating margins to compensate for the lost reliefs.

Legislation tracker, budget coverage, new tools. Free, no spam.

Didn't find what you were looking for?